No. 6 of 2019-20 - Tasmanian Audit Office · 2019 (No. 25) 2019 PARLIAMENT OF TASMANIA Auditor-General’s Report on the Financial Statements of State entities Volume 2 Audit of State

Strive • Lead • Excel | To Make a Difference

November 2019

Report of the Auditor-General No. 6 of 2019-20

Auditor-General’s Report on the Financial Statements of State entities

Volume 2

Audit of State entities and audited subsidiaries of State entities 2018-19

THE ROLE OF THE AUDITOR-GENERALThe Auditor-General’s roles and responsibilities, and therefore of the Tasmanian Audit Office, are set out in the Audit Act 2008 (Audit Act).Our primary responsibility is to conduct financial or ‘attest’ audits of the annual financial reports of State entities. State entities are defined in the Interpretation section of the Audit Act. We also audit those elements of the Treasurer’s Annual Financial Report reporting on financial transactions in the Public Account, the General Government Sector and the Total State Sector.Audits of financial reports are designed to add credibility to assertions made by accountable authorities in preparing their financial reports, enhancing their value to end users.Following financial audits, we issue a variety of reports to State entities and we report periodically to the Parliament.We also conduct performance audits and compliance audits. Performance audits examine whether a State entity is carrying out its activities effectively and doing so economically and efficiently. Audits may cover all or part of a State entity’s operations, or consider particular issues across a number of State entities.Compliance audits are aimed at ensuring compliance by State entities with directives, regulations and appropriate internal control procedures. Audits focus on selected systems (including information technology systems), account balances or projects.We can also carry out investigations but only relating to public money or to public property. In addition, the Auditor-General is now responsible for state service employer investigations.Performance and compliance audits are reported separately and at different times of the year, whereas outcomes from financial statement audits are included in one of the regular volumes of the Auditor-General’s reports to the Parliament normally tabled in May and November each year.Where relevant, the Treasurer, a Minister or Ministers, other interested parties and accountable authorities are provided with opportunity to comment on any matters reported. Where they choose to do so, their responses, or summaries thereof, are detailed within the reports.

THE AUDITOR-GENERAL’S RELATIONSHIP WITH THE PARLIAMENT AND STATE ENTITIESThe Auditor-General’s role as Parliament’s auditor is unique.

Crown

Parliament

ExecutiveGovernment

State Entities

Electors

Public Accounts Committee

Independent and ObjectiveAuditor-General

2019 (No. 25)

2019 PARLIAMENT OF TASMANIA

Auditor-General’s Report on the Financial Statements of State entities

Volume 2

Audit of State entities and audited subsidiaries of State entities 2018-19

28 November 2019

Presented to both Houses of Parliament pursuant to Section 30(1) of the Audit Act 2008

© Crown in Right of the State of Tasmania November 2019

Auditor-General’s reports and other reports published by the Office can be accessed via the Office’s website. For further information please contact:

Tasmanian Audit OfficeGPO Box 851 Hobart TASMANIA 7001Phone: (03) 6173 0900, Fax (03) 6173 0999Email: [email protected]: www.audit.tas.gov.au

ISSN: 1327 2608

i

28 November 2019

Mr President Legislative Council HOBART

Madam Speaker House of Assembly HOBART

Dear Mr PresidentDear Madam Speaker

REPORT OF THE AUDITOR-GENERALNo. 6 of 2019-20: Auditor-General’s Report on the Financial Statements of State entities Volume 2 - Audit of State entities and audited subsidiaries of State entities 2018-19

In accordance with the requirements of Section 29 of the Audit Act 2008, I have the pleasure in presenting my Report on the audit of the financial statements of State entities and audited subsidiaries of State entities for the year ended 30 June 2019.

Yours sincerely

Rod WhiteheadAuditor-General

To provide independent assurance to the Parliament and Community on the performance and accountability of the Tasmanian Public sector.Professionalism | Respect | Camaraderie | Continuous Improvement | Customer Focus

Strive • Lead • Excel | To Make a Difference

Level 8, 144 Macquarie Street, Hobart, Tasmania, 7000Postal Address GPO Box 851, Hobart, Tasmania, 7001

Phone: 03 6173 0900 | Fax: 03 6173 0999Email: [email protected]

Web: www.audit.tas.gov.au

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iii

TABLE OF CONTENTS

INTRODUCTION 1

RESULTS OF FINANCIAL STATEMENT AUDITS 3

GENERAL GOVERNMENT SECTOR 19

GOVERNMENT BUSINESSES 43

OTHER STATE ENTITIES 59

ACRONYMS AND ABBREVIATIONS 61

APPENDIX A - TIMELINESS OF REPORTING 64

APPENDIX B - AUDIT FINDINGS 70

iv


1IntroductionAudit of State entities and audited subsidiaries of State entities 2018-19

INTRODUCTIONThe Auditor-General has the mandate to carry out the audit of the financial statements of the Treasurer and all Tasmanian State entities. The aim of an audit is to enhance the degree of confidence in the financial statements by expressing an opinion on whether they present fairly, in all material respects, the financial performance and position of State entities and were prepared in accordance with the relevant financial reporting frameworks. The Tasmanian Audit Office (the Office) completed 110 financial statement audits for State entities and audited subsidiaries of State Entities for the year ended 30 June 2019. As at 15 November 2019, five audits were yet to be completed.The information provided in this Report summarises the financial audits undertaken under sections 16 and 18 of the Audit Act 2008 (Audit Act). Audits undertaken by arrangement under section 28 of the Audit Act are not included in this Report.

OVERVIEW OF THIS REPORTThis report is the second Volume for the 2018-19 financial audits and summarises the outcomes of audits of financial statements of State entities and audited subsidiaries of State entities for the year ended 30 June 2019. This Report includes summaries relating to:

• the timeliness of financial reporting• audit opinions on financial statements• audit findings• prior period errors• audits dispensed with• setting audit fees for financial audits• General Government Sector (GGS)• Government Businesses.

The report includes financial statement submission details and audit findings for the local government sector but due to two councils, Kentish and Latrobe, not submitting financial statements for audit as at 15 November 2019, the analysis of the local government sector has not been included. The two councils had not submitted financial statements due to challenges relating to the implementation of new financial management systems. An addendum to this Report will be tabled in the first quarter of 2020 which will summarise the results of all 31 December 2018 and 30 June 2019 audits including these two councils and other 30 June 2019 audits not completed as at 15 November 2019.A change has been made to the information provided in this Report for 2018-19. In past years, separate volumes were produced for the general government, government business and local government sectors, which included individual chapters for larger State entities. For 2019, the volumes have been combined into a single report and individual chapters for State entities have not been provided.In future years there will be a single report on the outcomes of the audits of State entities and audited subsidiaries of State entities covering 31 December 20X0 and 30 June 20X1 financial years.

2 IntroductionAudit of State entities and audited subsidiaries of State entities 2018-19

FINANCIAL INFORMATIONThis Report mainly focuses on the consolidated results of State entities. In some Chapters, financial information on controlled or equity accounted State entities is disclosed.Unless otherwise stated, analysis undertaken on financial results at the sector level uses the consolidated results of State entities. Sector financial information is reported and analysed at different aggregation levels. Further information is provided in the relevant Chapter.

GUIDE TO USING THIS REPORTGuidance relating to the use and interpretation of financial information included in this Report can be found at the Office website: www.audit.tas.gov.auThe guidance includes information on the calculation and explanation of financial ratios and performance indicators and the definition of audit finding risk ratings.

RECOMMENDATIONSThis Report contains two recommendations.

Recommendation 1The Government consider whether further entities be removed from the National Tax Equivalent Regime where the benefit derived from remaining in the regime is significantly outweighed by the cost of complying with requirements.

Recommendation 2The Government consider undertaking a review of businesses reliant on Government funding or commercial industry support to evaluate:

• the legislative frameworks for these businesses• the ‘for-profit’ nature of these businesses• whether the businesses remain as stand-alone businesses or be attributed to a government

department or other business• whether non-profitable segments of the businesses could be separated from the profitable

segments of businesses.

SUBMISSIONS AND COMMENTS RECEIVEDWhere relevant, extracts of this Report were provided to the relevant entity for comment and response.Comments provided are not subject to the audit nor the evidentiary standards required in reaching an audit conclusion. Responsibility for the accuracy, fairness and balance of these comments rests solely with those who provided the response or comment.Where comments were provided, these have been included below:

These comments relate to your recommendations to withdraw entities from the National Tax Equivalent Regime (NTER) and the 'for-profit' corporate structures for certain State entities.Tasmanian Government businesses are subject to the NTER to support our continuing commitment to competitive neutrality. Tax neutrality supports the principle that Government businesses should not enjoy a net competitive advantage simple as a result of Government ownership.The governance framework for Tasmanian Government businesses is regularly reviewed and updated to ensure the framework and arrangements are appropriate. Your findings will be taken into account in any future consideration of the governance framework.Hon Peter Gutwein MP Treasurer

3Results of Financial Statement AuditsAudit of State entities and audited subsidiaries of State entities 2018-19

RESULTS OF FINANCIAL STATEMENT AUDITS

INTRODUCTIONThe Auditor-General has the mandate to carry out the audit of the financial statements of the Treasurer and all Tasmanian State entities. The aim of an audit is to enhance the degree of confidence in the financial statements by expressing an opinion on whether they present fairly, in all material respects, the financial performance and position of State entities and were prepared in accordance with the relevant financial reporting frameworks.The Office completed 110 financial statement audits for State entities and audited subsidiaries of State entities for the year ended 30 June 2019.

STATE ENTITIES COVERED IN THIS REPORTThe information provided in this Chapter summarises the financial audits undertaken under sections 16 and 18 of the Audit Act. Audits undertaken by arrangement under section 28 of the Audit Act are not included in the Chapter. This Chapter summarises the outcomes of audits of financial statements of State entities and audited subsidiaries of State entities for the year ended June 2019. Information for 31 December 2018 audits can be found in Report of the Auditor-General No. 9 of 2018-19 Auditor-General’s Report on the Financial Statements of State entities Volume 1 State entities 31 December 2018 available at the Office's website: www.audit.tas.gov.au

Figure 1: Audited State entites and audited subsidiaries by sector and legislative base

36Local government

entities

39General government

sector entities

21Government

Businesses (including TasWater)

14Other

37Other legislation

6Government Business

Enterprises Act 1995

12Corporations

Act 2001

20

Financial Management andAudit Act 1990

35Local Government

Act 1993

The above figure Includes controlled or consolidated entity audits for year ended 30 June 2019, and excludes 31 December 2018 audits and 30 June 2019 audits not completed.

4 Results of Financial Statement AuditsAudit of State entities and audited subsidiaries of State entities 2018-19

SUBMISSION OF FINANCIAL REPORTS AND TIMELINESS OF AUDIT OPINIONSAll State entities and audited subsidiaries of State entities are required to submit financial statements to the Auditor-General within 45 days after the end of each financial year. For 30 June 2019 financial reporting, this deadline fell on Wednesday, 14 August 2019.Excluding any dispensed with audits, the Auditor-General must audit the financial statements and issue an audit report outlining compliance with relevant legislation and accounting standards within 45 days of their submission. For financial statements submitted on 14 August 2019, this deadline fell on Saturday, 28 September 2019.

State entities and subsidiaries of State entities 30 June 2019

1381 94% 67%2

Financial statements submitted

Financial statements submitted on time

Audits completed on time

Treasurer’s Annual Financial Report (TAFR)

Public Account

Financial reports received 9 October 2019

Audit reports issued 30 October 2019

1. Relates to 30 June 2019 financial statements submitted. Does not include those entities that have yet to submit financial statements.

2. Excludes audits dispensed with.

For 30 June 2019, 14 State entities failed to meet the submission deadline compared to 20 entities for the year ended 30 June 2018. Compliance with the requirement to complete audits of financial statements submitted within 45 days fell in 2018-19. For 30 June 2019, 38 audits were completed outside the time required, compared to 13 for 30 June 2018. This deterioration in performance was due to the Office experiencing significant and unanticipated staff shortages, delays caused by issues identified during the audit process and a lack of readiness by some entities, including unavailability of key finance personnel in some clients.

Certification of financial statements

Financial Statements certified by

44 91Management Accountable Authority

From 2016-17, State entities could submit financial statements certified by either the accountable authority or by management (Chief Financial Officer or equivalent). Certification by management was utilised by a lower portion of entities for 30 June 2019 compared to 30 June 2018 (67 management, 81 accountable authority). Although certification by management does not usually impact the timeliness of audit completion, in 2018-19 there were a few instances where the accountable authority was not available to sign the audited financial statements by the legislated audit deadline date.


AUDIT OPINIONS ON FINANCIAL STATEMENTSThe Auditor-General is required to issue an opinion on each financial statement audit conducted under the Audit Act. Australian Auditing Standards prescribe the auditor’s reporting responsibilities, including the responsibility to form an opinion on whether the financial statements present fairly, in all material respects, the financial performance and position of State entities and were prepared in accordance with the relevant financial reporting frameworks. An opinion may be either:

• unmodified, when the auditor concludes that the financial statements were prepared, in all material respects, in accordance with the applicable financial reporting framework

• modified, if the auditor concludes that the financial statements as a whole were not free from material misstatement or was unable to obtain sufficient appropriate audit evidence.

Figure 2: Types of audit opinions

Independent Auditor’s Report

Unmodified opinion

Modified opinion

Emphasis of matter

paragraph

Adverse opinion

Other matter

Disclaimer paragraph of

opinion

Disclaimer of opinion

Qualified opinion

The auditor may communicate additional matters in the auditor’s report while still expressing an unmodified opinion on the financial statements. The purpose of this is to draw the attention of the users to relevant information, which in itself is not significant enough to result in a modified opinion.


AUDIT OPINIONS ON FINANCIAL STATEMENTSFigure 3: Audit opinions issued for 30 June 2019 audits

115Audits

109Unmodified opinions

5Audits notcompleted

2

Unmodified opinion with emphasis of matter paragraph

1Qualified opinions

109Unmodified audit opinions issued on financial statements

(as at 15 November 2019)

Unmodified audit opinions were issued on all 30 June 2019 financial statement audits completed to 15 November 2019, except for King Island Council.

2Emphasis of matter paragraph

Two of the unmodified audit opinions contained an emphasis of matter paragraph. Emphasis of matter paragraphs are used to highlight matters, although appropriately presented or disclosed in the financial statements, that are important to bring to the users’ attention so as to assist with their understanding of the financial statements. Including an emphasis of matter paragraph does not modify the audit opinion.

Tasmanian Public Finance Corporation

The emphasis of matter paragraph drew attention to a note in the financial statement which described the Corporation’s application of Treasurer’s Instruction GBE-08-52-09P in respect of the Mersey Community Hospital Fund.

Tasmanian Affordable Housing

The emphasis of matter paragraph drew attention to note 2 and note 15. Note 2 assets and liabilities are presented in decreasing order of liquidity and are not distinguished between current and non-current. Note 15 states the directors have resolved to adopt a non-going concern basis due to the activities of the company having ceased.


1Qualified opinions

A qualified opinion is issued when a specific part of the financial statements contains a material misstatement or adequate evidence to support a material area cannot be obtained, but the remainder of the financial statements present a true and fair view, in accordance with the relevant financial reporting framework.

King Island Council Council’s road assets are measured at their fair value in accordance with accounting standards. Accounting standards require Council to carry out revaluations with sufficient regularity to ensure the carrying amount of road assets do not differ materially from that which would be determined using fair value at the end of the reporting period. Council had not undertaken a revaluation of road assets since 2011-12. An assessment of the financial impact of failing to undertake the revaluation, based on the application of relevant construction indices, revealed an understatement in the road assets at 30 June 2019 estimated at $5.37m.

5Audits not yet completed

As at 15 November 2019, the following five audits had not yet been completed:• Glamorgan Spring Bay Council• Kentish Council• Latrobe Council• North East Care Inc.• National Trust of Australia (Tasmania)

Latrobe and Kentish councils had not submitted financial statements for audit as at 15 November 2019.

FINDINGS FROM 30 JUNE 2019 AUDITSDeficiencies in internal controls, accounting issues, governance matters and unresolved issues identified during an audit are reported to management, those charged with governance of State entities and relevant Ministers. These are communicated by way of management letters, which include finding observations, related implications, recommendations and risk ratings. Management responses to findings are also reported together with the expected dates matters are to be resolved by.

30 June 2019 30 June 2018143 112 136 133

Audit matters raised

Audit matters raised in prior

periods assessed as unresolved

Audit matters raised

Audit matters raised in prior

periods assessed as unresolved

Each finding is categorised as high, moderate or low risk, depending on its potential impact. The definition of these risk categories is contained in the Guide to using reports on the audit of financial statements of State entities, which is available on the Office's website: www.audit.tas.gov.au


Table 1: 30 June 2019 Audit Findings by area

High Risk Moderate Risk Low Risk TotalAssets 3 15 9 27IT Systems and Security 3 14 15 32Expenditure - 9 4 13Payroll - 7 4 11Revenue/Debtors - 4 1 5Other Internal Control - 10 9 19Policies and Procedures - 2 6 8Other 4 12 12 28Total 10 73 60 143

High risk findingsHigh risk findings for Assets were identified at Glenorchy City, Launceston City and Dorset councils and related to the currency, management and accuracy of the asset revaluation and capitalisation processes undertaken by those entities. The high risk IT Systems and Security findings related to software or system security access controls within the Department of Justice and Hydro Tasmania and software derived issues arising from the implementation of an upgraded enterprise reporting system at Clarence City. Other high risk findings related to the reconciliation of cash on hand and bank balances at PAHSMA and Tasman Council, the capture of non-standard derivative trades at Hydro Tasmania and the completeness and clarity of work papers supporting the financial statements at Devonport City.Management responses acknowledging and providing proposed responses to these matters have been received from the respective entities.Moderate risk findings Moderate risk findings covered a broad range of matters. Moderate risk findings for Assets related to less pervasive findings associated with asset revaluation processes, documentation of annual impairment and useful life assessments and isolated findings in respect to the timeliness of capitalisation of capital works in progress expenditure. Account security and software access controls dominated the moderate findings in the IT Systems and Security category. Issues also included excessive leave balances and breakdowns in the design and implementation of key internal controls in payroll, payments and receipting systems. The Other classification findings include a number of accounting and financial reporting matters.Low risk findings Low risk findings were found across all areas but were generally considered to be isolated, non-systemic or procedural in nature. In some cases they represented opportunities to improve existing processes or further strengthen existing controls, particularly in payroll.

Table 2: 30 June 2019 Audit Findings by sector

High Risk Moderate Risk Low Risk TotalGeneral Government Sector 1 19 28 48Government businesses 3 13 7 23Local government 6 37 22 65Other - 4 3 7Total 10 73 60 143


High risk issues were mostly prevalent in the Local Government sector. This was consistent with past years and the issues primarily related to asset valuations.

PRIOR YEAR FINDINGS

43%Issues previously reported remained unresolved

Unresolved prior years findings are followed up each year to confirm whether they have been resolved or satisfactory addressed by management.

Figure 4: Previously reported findings (yet to be resolved from date corrective action was due) aging analysis

0

10

20

30

40

50

60

70

80

< 6 months 6 - 12 months 12 - 18 months 18 - 24 months > 24 months Resolved (Closed)

Num

ber o

f find

ings

High Moderate Low

Efficient resolution of audit findings is crucial to reduce an entity’s exposure to risk. During 2018-19, 57% of issues previously reported were resolved. Only four high risk issues over 12 months old had yet to be resolved, two of which were over 24 months old. These related to unrecorded heritage collection assets held by National Trust of Australia (Tasmania) and the reconciliation of subsidiary ledgers to the trial balance through to the financial report by a council.

Table 3: Prior year unresolved Audit Findings by areaHigh Risk Moderate Risk Low Risk Total

Assets 7 14 7 28IT Security - 11 8 19Expenditure - 6 1 7Payroll - 5 13 18Revenue/Debtors 2 5 2 9Other Internal Control - 5 1 6Policies and Procedures - 7 5 12Other 2 8 3 13Total 11 61 40 112


High risk findings that were previously reported but not yet resolved largely related to asset valuations. Other high risk findings related to bank reconciliations, segregation of duties, revenue reporting, documentation and various internal processes.Unresolved Moderate risk and Low risk findings covered a broad range of matters. The majority of outstanding prior year matters related to assets, IT security, many of which had extended lead times for resolution, and payroll.

Table 4: Prior year unresolved Audit Findings by sector

High Risk Moderate Risk Low Risk TotalGeneral Government Sector 6 30 17 53Government businesses 1 7 6 14Local government 4 24 17 45Total 11 61 40 112

The GGS had the largest number of unresolved prior year findings as well as the largest number of high risk findings. These high risk findings predominantly related to asset valuations. The local government sector had four unresolved high risk findings, the majority of which also related to asset valuations.A breakdown of current and prior year findings by entiy can be found in Appendix B.

PRIOR PERIOD ERRORSNine prior period errors were reported in the submitted 30 June 2019 financial statements. This represented an improvement on 30 June 2018 where 21 prior period errors were reported. A prior period error represents an omission or misstatement in an entity's financial statements for one or more prior periods. For reported prior period errors the following disclosures are required in the financial statements:

(a) the nature of the prior period error(b) for each prior period presented, to the extent practicable, the amount of the correction

for each financial statement line item affected(c) the amount of the correction at the beginning of the earliest prior period presented.

Where it is impracticable to adjust figures for a particular prior period, the financial statements must disclose the circumstances that led to the existence of the condition and a description of how and from when the error had been corrected.Audit procedures undertaken to assess the appropriateness of prior period errors included:

• inspection and testing of evidence leading to the occurrence and quantification of the error

• consideration of the size and nature of the misstatements, both in relation to particular classes of transactions, account balances or disclosures and the financial report as a whole

• discussions with management to confirm the appropriateness of the accounting treatment and disclosures to be made in the financial statements

• an assessment by the Office's technical committee for review of the proposed accounting treatment and disclosures.

Where material errors impact financial results and balances prior to the comparative year, a restated third statement of financial position may be required to be presented. Of the nine entities that disclosed prior period errors, none were required to present a third statement of financial position.


Figure 5: Prior period errors - by sector

5Local Government

Sector

1Government

Business Sector

3General Government

Sector

Five of the errors occurred in the Local Government sector, three errors in the Government business sector and one in the GGS, with the majority of errors involving assets.Seven of the nine errors were discovered by entities themselves with two errors identified by the audit team. Further detail of the nature of these prior period errors is provided below.Prior period errors arose from a failure to use available and reliable information which could reasonably have been expected to be obtained and taken into account in the preparation and presentation of those financial statements. Such errors included the effects of mathematical mistakes, mistakes in applying accounting policies, oversights or misinterpretations of facts.

Figure 6: Prior period errors - by nature

1Mathematical

5Oversights

3Accounting

Given the size, nature and complexity of assets recognised in statements of financial position, it is not surprising that most prior period errors arose in this area. These included valuation errors (such as, miscalculation of accumulated depreciation, use of inappropriate unit rates and incorrect indexation methods), found assets, errors within asset registers and assets included in work-in-progress commissioned with no depreciation expense recognised.Other valuation related errors included incorrect valuation of financial liabilities and errors in the valuation of rehabilitation and restoration provisions.Found asset errors were predominately associated with stormwater assets. There was no commonality in the cause of these errors, making it difficult to predict the likelihood of similar undetected errors across other entities. However, due to the significant number of prior period errors in assets in 30 June 2018 financial statements, there was an increased focus on assets during the 30 June 2019 audits. As legacy issues in assets giving rise to prior period errors may still exist, this will continue to be an area of focus in future audits.


Further particulars of the nine prior period errors are provided below.Five oversight errors comprised:

3Found Assets

Sorell(Local Government)

Sorell identified a net increase of $4.35m in stormwater assets as part of the stormwater inspection program undertaken by a third-party provider. These were assets had not previously been recorded or were recorded without a value.

Devonport City(Local Government)

Devonport City identified an increase of $1.54m in storm water assets as part of the stormwater inspection process. The assets had been incorrectly included as additions in the asset summary for stormwater assets. The council also found land assets with a value of $0.02m which had been recorded for the first time.

Glenorchy City(Local Government)

The audit team identified a net increase of $2.22m in stormwater assets in reconciling an unusual adjustment in the stormwater asset movement schedule. These were assets which had not previously been recorded or were recorded without a value.

2Work in Progress

TasWater(Government Business)

TasWater identified that capital work-in-progress included completed projects which should have been transferred out of work-in-progress into fixed asset classifications. Further the entity was understating depreciation expense and overstating the value of Property plant and equipment, including the capital work-in-progress. As a result there were prior period errors relating to 1 July 2017 Property, plant and equipment, overstated by $3.60m, Intangible assets, understated by $0.69m, and Retained earnings, overstated by $2.91m. In addition, it was noted the entity’s 30 June 2018 Property, plant and equipment was overstated by $6.63m, Intangible assets understated by $2.34m, Retained earnings overstated by $5.47m, depreciation expense understated by $3.53m, tax expense overstated by $1.06m and comprehensive income overstated by $2.47m.

Kingborough(Local Government)

During 2018-19, Kingborough continued to bring its asset management system up to date by capitalising work-in-progress on assets with installation dates prior to 30 June 2018. This resulted in identification of assets that had been commissioned but not transferred from work-in-progress, hence these assets had not been depreciated during the year. The net value of understated depreciation was $0.13m. Management, identified a number of other costing errors totalling $0.41m that should have been expensed prior to 1 July 2017.When management compared land assets against the Valuer-General‘s records, approximately $12.00m of land was found not to be owned by Council. Conversely, another $10.00m was identified as owned by Council but not previously recognised. The net effect was a write-off of $2.13m of land. These errors occurred as no reconciliation comparing the Valuer-General’s property records against council records had been undertaken.


One mathematical errors comprised:

1Asset Revaluation

Launceston City(Local Government)

Launceston City performed a revaluation on buildings in 2017-18 based on an independent valuation. Council adopted the gross valuation of the independent valuer but chose to internally calculate accumulated depreciation based on Council’s adopted useful lives and known construction dates. Due to date limitations within Council’s asset software, accumulated depreciation for buildings with construction dates pre-1900 was incorrectly calculated. As a result, the construction date for relevant assets was automatically changed to 1 January 2000. The impact on the financial statements at 30 June 2018 was understatement of accumulated depreciation and overstatement of asset revaluation reserve by $24.62m.

Three accounting policy errors comprised:

3Accounting Treatment

Housing Tasmania(GGS)

Housing Tasmania reassessed its Asset revaluation reserve balance. The revaluation Reserve balances carried forward did not reflect the sum of increments for the individual assets held. In prior years the Reserve had not been adjusted for assets disposed or derecognised. An adjustment of $1.34bn was processed within equity movements in 2018-19. This was incorrect, as the adjustment related to balances that should have been written back in prior years. A prior period error was recognised adjusting Opening retained earnings and Asset revaluation reserve.

Ambulance Tasmania(GGS)

Ambulance Tasmania reassessed its Asset revaluation reserve balance. This Reserve balances carried forward did not reflect the sum of revaluations increments for individual assets held. In prior years the Reserve had not been adjusted for assets disposed or derecognised. An adjustment of $7.70m was processed within equity movements in 2018-19. This was considered incorrect, as the adjustment related to balances that should have been written back in prior years. A prior period error was recognised adjusting Opening retained earnings and Asset revaluation reserve.

TasTAFE(GGS)

The audit team identified that TasTAFE had reported revenue in advance on fees and charges incorrectly in its 2017-18 financial statements. The amount of revenue received in advance was understated due to incorrect treatment of invoices raised in 2018 for services greater than one year. The impact of the correction overstated revenue and expenses by a net amount of $0.85m. A prior period error was recognised adjusting the net result down by $0.85m due to a decrease in sale of goods and services revenue of $0.95m, and grants and concessions by $0.10m, with a corresponding increase of $0.85m in other current liabilities.


AUDITS DISPENSED WITHFigure 7: Dispensation of audits process

Auditor-General can dispense with audits

of State entities

Entities must demonstrate

appropriate financial reporting

Auditor-General must consult with Treasurer prior to

giving dispensation

For 2018-19 35 audits were dispensed with

(2017-18, 38)

The Auditor-General has the discretion under the Audit Act to dispense with certain audits if considered appropriate in the circumstances. The dispensation is subject to meeting one of the following conditions determined by the Auditor-General:

• The State entity must demonstrate that its financial reporting and auditing arrangements are appropriate. To satisfy this condition, the entity is required to submit their audited financial statements to the Auditor-General each year. The financial statements are reviewed and, where necessary, feedback on information presented in the financial statements is provided to the entity.

• The entity is controlled by another State entity and is included in the group audit of the controlling entity.

• The entity has not operated and the accountable authority has provided evidence to support this assertion.

It is important to note that dispensation of the audit does not limit any of the Auditor-General’s functions or powers given under the Audit Act. Where the entity is of significant size or by its nature of particular public interest, it is unlikely dispensation will be granted. The Audit Act also requires the Auditor-General to consult with the Treasurer before exercising the power to dispense with audits. After consultation with the Treasurer, the audits of the financial statements of the following entities were dispensed with:

Controlled Subsidiaries - Year Ended 31 December 2018 • Sense-Co Tasmania Pty Ltd (University of Tasmania)

Other Boards and Authorities - Year Ended 31 December 2018 • Board of Architects of Tasmania

Controlled Subsidiaries - Year Ended 30 June 2019• AETV Pty Ltd (Hydro Tasmania) • Bell Bay Pty Ltd (Hydro Tasmania)• Bell Bay Three Pty Ltd (Hydro Tasmania)• Brighton Industrial and Housing Corporation Pty Ltd (Brighton Council)


• C-Cell Pty Ltd (Copping Refuse Disposal Site Joint Authority)• Flinders Island Ports Corporation Pty Ltd (TasPorts)• Geeveston Town Hall Company Ltd (Huon Valley Council)• Heemskirk Holdings Pty Ltd (Hydro Tasmania)• Heermskirk Wind Farm Pty Ltd (Hydro Tasmania)• Heritage Building Solutions Pty Ltd (Southern Midlands Council)• Heritage Education & Skills Centre Pty Ltd (Southern Midlands Council)• HT Wind Developments Pty Ltd (Hydro Tasmania)• HT Wind New Zealand Pty Ltd (Hydro Tasmania)• HT Wind Operations Pty Ltd (Hydro Tasmania)• Hydro Tasmania Consulting (Holding) Pty Ltd (Hydro Tasmania)• Kingborough Waste Services Pty Ltd (Kingborough Council)• King Island Ports Corporation Pty Ltd (TasPorts)• Large Scale Renewables Pty Ltd (TasNetworks)• Lofty Ranges Power Pty Ltd (Hydro Tasmania)• Maidstone Park Management Controlling Authority (Devonport City Council)• Marinus Link Pty Ltd (TasNetworks)• Metro Coaches (Tas) Pty Ltd (Metro)• Newood Energy Pty Ltd (Newood Holdings Pty Ltd)• Newood Huon Pty Ltd (Newood Holdings Pty Ltd)• Newood Smithton Pty Ltd (Newood Holdings Pty Ltd)• palawa Enterprise Pty Ltd (Aboriginal Land Council of Tasmania)• palawa Enterprise Unit Trust (Aboriginal Land Council of Tasmania)• RE Storage Project Holdings Pty Ltd (Hydro Tasmania)• TasNetworks Holdings Pty Ltd (TasNetworks)• Woolnorth Bluff Point Holdings Pty Ltd (Hydro Tasmania)• Woolnorth Studland Bay Holdings Pty Ltd (Hydro Tasmania).

Other Boards and Authorities - Year Ended 30 June 2019 • Tasmanian Pharmacy Authority• Tasmanian Timber Promotion Board


AUDIT FEES

Summary of audit feesTable 5 summarises the initial audit fees determined by the Auditor-General by sector for 2018-19.

Table 5: Fees by sector 2018-19

Sector Fee*$’000s

GGS entities 1 703Government businesses 1 603Local government entities 1 015Other State entities 471 Total 4 792

* These fees exclude fees generated from audits by arrangement, which include various regulatory audits and grant acquittals, and other fee recoveries.

Basis for setting audit fees

BackgroundSection 27 of the Audit Act provides that:

“(1) The Auditor-General is to determine whether a fee is to be charged for an audit carried out by the Auditor-General under this Division and, if so -

the amount of that fee; andthe accountable authority liable to pay that fee.”

In relation to the tabling of Auditor-General’s reports on audits of the financial statements of State entities the Audit Act also requires the following at section 29(3):

“(3) A report under subsection (1) is to describe the basis on which audit fees are calculated.”

To comply with section 29(3), the basis for setting audit fees for conducting audits of the financial statements of State Entities is detailed in this Chapter. Audit fees are not charged for performance audits, compliance audits or investigations. These audits and investigations are funded from Appropriation.

Basis on which audit fees are calculatedThis section explains the fee setting process for individual State entities, including:

• the specific factors taken into account in proposing the fee (particularly the risk assessment)

• the assumptions upon which the fee is based in terms of, for example, the standard of the entity’s control environment, coverage of internal audit, quality of working papers and so on

• what is included in the fee and what is not included• processes for agreeing additional fees if circumstances change or the assumptions upon

which the fee is based are not met.

Principle for audit fee determinationFees are set for each State entity commensurate with the size, complexity and risks of the engagement. These factors affect the mix of staff assigned to each audit and therefore the


overall fee. Staff are assigned hourly charge rates for use in determining the allocation of work on the audit and in computing the fee.There is an expectation that audits of similar complexity and risks will have a similar mix of staff.Direct travel time and costs attributable to each audit are billed separately.

Principle for determining charge ratesCharge rates are based on the principle of the Office being able to recover its costs of operation. Charge rates comprise two parts, direct salary cost and overhead recovery.

Application of audit fee matrixA matrix (audit fee scale) has been developed to provide a guide for determining the expected time to be taken on an audit. The scales are based on the following key variables:

• Size of the entity based on its expected gross turnover which is used to determine the base amount of time required to conduct the audit. Turnover is based on the client’s actual income and expenditure for the preceding financial year, adjusted for any known factors (Fixed element).

• Risk and complexity profiles for each entity which consider the corporate structure, complexity of systems, operations and financial statement reporting requirements. The profile bands applied range from 40% below to 40% above the base time (Variable element).

The fee scales also take account of changes to Australian Auditing or Accounting Standards and known changes in the scope of work to be performed.Fee scales are as follow:

Turnover* Base Hours Variable component<$100 000 15 +/-40%$101 000 to $1.5m 30 +/-40%$1.5m to $10m 100 +/-40%$10m to $55m 155 +/-40%$55m to $121m 270 +/-40%$121m to $200m 460 +/-40%$200m to $410m 610 +/-40%$410m to $1bn 830 +/-40%>$1bn 1 350 +/-40%

*may be adjusted in line with CPI movements

Bandings are based on current cost experience in conducting audits. After applying the above model, the hours to undertake the audit are allocated according to the staff mix necessary to conduct the audit. The respective staff charge rates are then applied to the allocated hours so as to determine a dollar amount (the audit fee). Where applicable, travel and other direct costs (out of pocket expenses) are added to the audit fee on a full cost recovery basis.

It is emphasised the fee scales only provide a framework from which actual fees charged to individual State entities are set. The level of fee, and any change, experienced by individual State entities will therefore vary according to local circumstances and the risks each entity faces.In certain circumstances, for example, where a State entity faces a particular challenge to manage high risks or there are particular local circumstances, a fee may fall outside the noted bands. In these cases, the audit fee will be determined by the audit team in consultation with entity management, reflecting the assessment of risk and the extent and complexity of the audit work required.


Key assumptionsFees are calculated on the basis that:

• current accounting systems will be operating throughout the year with a satisfactory appraisal of internal control

• no errors or issues requiring significant additional audit work will be encountered during the course of the audit

• the standard period-end general ledger reconciliations will be available at the commencement of the final audit visit

• requests for additional information throughout the audit will be attended to in a reasonably timely manner

• agreed timetables will be met, within reason• financial statements, complete in all material respects, are submitted to audit in

accordance statutory time limits• the nature of the entity’s business and scale of operations will be similar to that of the

previous financial year.

Use of specialist skills impact on feesIn certain circumstances, audit experts may be engaged to assist with an audit. Where this is the case, it can result in higher costs being incurred. In these circumstances, the fee to be charged will be determined by the audit team in consultation with entity management and will reflect the size, complexity or any other particular difficulties in respect of the audit work required. Where possible, such costs are absorbed within the base audit fee.

Additional audit feesIf the circumstances outlined under the section headed “Key assumptions” change in a year, additional audit fees may be charged. Fees may be adjusted in the following circumstances:

• changes to the size and nature of the entity and its operations• changes to the risks associated with a particular engagement• changes to accounting and auditing standards requiring greater audit effort• ad-hoc matters that impact upon significant balances within the financial statements,

such as a significant asset revaluation• unavoidable increases in costs of maintaining the Office.

There may also be circumstances where, based on the assessment of size, complexity and risks of the engagement, audit fees may be reduced.Additional work (including work arising from the adoption of new accounting standards or issues associated with key risks and other matters arising) will be billed separately if it cannot be absorbed into the existing fee.Any future impact of agreed additional fees would be assessed in terms of the on-going audit fee.

Communication of audit feesIn all cases, fees are communicated to each accountable authority prior to audit commencement or during the planning phase of the audit.

Audits by arrangementAudit fees to be charged for audits by arrangement will be determinted by the audit team in consultation with entity management and will reflect the size, complexity or any other particular difficulties in respect of these types of audits. Fees will have regard to the time taken, the audit staff assigned and their respective charge rates.

19General Government SectorAudit of State entities and audited subsidiaries of State entities 2018-19

GENERAL GOVERNMENT SECTOR

INTRODUCTIONThis Chapter provides an overview of the GGS and details developments within GGS entities that impacted upon their current financial year results. This Chapter also includes financial analysis on the TAFR, including the audited GGS, Total State Sector (TSS) and Public Account statements.

OVERVIEW OF SECTOR

General Government SectorThe GGS consisted of all Government departments and not-for-profit State entities controlled and mainly financed by Government. Government departments are entities established by executive government processes that have legislative, judicial, or executive authority over other units and which provided goods and services to the community or to individuals on a non-market basis. They also make transfer payments to redistribute income and wealth. Not-for-profit State entities are created for the purpose of producing or distributing goods and services and were not a primary source of income, profit or other financial gain for Government.

Total State SectorThe TSS included all GGS, Public Non-Financial Corporations (PNFC) and Public Financial Corporations (PFC) entities. PNFC entities were mainly engaged in the production of market goods and/or non-financial services. These entities had a variety of functions and responsibilities, were established in varying ways and had different relationships with the Budget. PFC entities were mainly engaged in financial intermediation or provision of auxiliary financial services. In Tasmania, there were two entities in the PFC Sector, Tascorp and Motor Accidents Insurance Board (MAIB).The structure of the GGS and TSS is illustrated in Figure 8.

20 General Government SectorAudit of State entities and audited subsidiaries of State entities 2018-19

Figure 8: Structure of General Government Sector and Total State Sector

General Government SectorGovernment Departments:

• Communities Tasmania• Education• Health• Justice• Police, Fire and Emergency

Management• Premier and Cabinet• Primary Industries, Parks,

Water and Environment• State Growth• Treasury and Finance

Other entities that principally provide public services:

• Brand Tasmania• House of Assembly• Inland Fisheries Service• Integrity Commission• Legislative Council• Legislature-General• Marine and Safety Tasmania• Office of the Director of Public

Prosecutions• Office of the Governor• Office of the Ombudsman

and Health Complaints Commissioner

• Royal Tasmanian Botanical Gardens

• State Fire Commission• Tasmanian Audit Office• TasTAFE• Tourism Tasmania

Public Financial Corporations• Motor Accidents Insurance

Board • Tasmanian Public Finance

Corporation

Public Non-Financial Corporations• Aurora Energy• Hydro Tasmania• Macquarie Point

Development Corporation• Metro Tasmania• Port Arthur Historic Site

Management Authority• Private Forests Tasmania• Public Trustee• Sustainable Timber Tasmania• Tasmanian Irrigation• Tasmanian Networks• Tasmanian Ports Corporation• Tasmanian Railway• Tasracing• TT-Line Company


GENERAL GOVERNMENT SECTOR DEVELOPMENTSThe following sections summarise significant developments identified during the course of the audits that affect the operations of GGS entities.

Administrative restructure of departmentsThe State Service (Restructuring) Order 2018 (Order) resulted in the transfer of significant assets and liabilities between several departments on 1 July 2018. Under this Order, the Tasmanian Health Service (THS) was amalgamated with certain outputs of the former Department of Health and Human Services (DHHS) to form the Department of Health (DoH) and certain outputs of the former DHHS were transferred to the new Department of Communities Tasmania (Communities Tasmania). In addition, Community Development, Sport and Recreation, Tasmanian Institute of Sport, the Silverdome and administrative responsibility for the Tasmanian Community Fund were transferred to Communities Tasmania from the Department of Premier and Cabinet (DPAC).Additionally, the Tasmania Health Service Act 2018, repealed the Tasmanian Health Organisations Act 2011, under which THS was established. Under the new legislation, THS continued as a separate legal entity reporting directly to the Secretary of DoH with an executive group maintaining a focus on State-wide planning.Financial results in this Report reflect these restructures.

Financial Management Act 2016During 2018-19, the Department of Treasury and Finance (Treasury) continued to develop a financial management framework to support the implementation of the Financial Management Act 2016 (FMA). The FMA came into effect on 1 July 2019, replacing the Public Account Act 1986 (PAA) and the Financial Management and Audit Act 1990 (FMAA). The Consolidated Fund and Special Deposits and Trust Fund (SDTF) ceased to exist from 1 July 2019 and is now solely the Public Account.Associated Treasurer’s Instructions were issued and apply from 1 July 2019. The new Treasurer’s Instructions:

• focus on key principles rather than being overly prescriptive • reduce the complexity of detail included in the Treasurer’s Instructions • avoid unnecessary duplication with the requirements of Australian Accounting

Standards• exclude matters that are no longer relevant.

These Treasurer’s Instructions are supported by Financial Management - Better Practice Guidelines which are intended to assist agencies with their financial management responsibilities, including the areas of financial control, financial reporting and budget.

Department of Communities TasmaniaAffordable HousingThe Capital Investment Program budget for 2018-19 was $64.21m. Major projects included $45.00m for the Affordable Housing Strategy Stages 1 and 2.For Stage 1, the Government’s target was to provide 1 600 vulnerable Tasmanian households with support over the four-year term of the action plan including the provisioning of over 900 lots of land and new homes and support to access affordable homes in the private market. Both of these targets have been exceeded with 1 605 households being assisted and 984 lots of land being delivered.


National Disability Insurance SchemeAdditional funding of $202.47m over four years (2018-19 to 2021-22) was allocated for the State contribution to the National Disability Insurance Scheme (NDIS). Further additional funding of $61.92m over three years was allocated in the 2019-20 budget, bringing the total committed additional funding to $264.40m over five years (2018-19 to 2022-23). In 2018-19, Communities Tasmania expended $61.34m of this funding.Equal Remuneration Order CostsAdditional funding for costs under the Fair Work Commission Equal Remuneration Order (ERO) is being contributed in 10 instalments over nine years. Funding of $31.79m received in 2018-19 represented the seventh year of this additional funding. This enables community sector organisations to fully meet obligations and requirements under the ERO.Commonwealth State Housing Agreement DebtOn 9 September 2019, the Australian Government agreed to waive all future principal and interest repayments related to the former Commonwealth State Housing Agreement debt. The waiver was on the condition that the full amount of principal and interest repayments be applied to programs that increase access to social housing, reduce homelessness and improve housing supply across Tasmania. The total of the debt was $157.60m at 30 June 2019.

Department of EducationWorking Together for 3 year olds (WT3)Funding of $2.27m was provided in 2018-19 to support the co-design of the Working Together for 3 year olds (WT3) initiative. The total investment in this initiative, which will be delivered in partnership between the Department of Education (DoE) and the Early Childhood Education and Care sector, is $31.25m over four years. This initiative will deliver free pre-school for eligible three year old Tasmanian children who are experiencing vulnerability or disadvantage. Year 12 extensionThe requirement for students to participate in education and/or training until they are 18, or the completion of year 12 was supported by the Government commitment to extend all Tasmanian high schools to year 12 by 2022, while still keeping secondary colleges open. Additional recurrent funding of $24.50m was allocated over four years, to continue the Government’s commitment to extend all 54 Tasmanian High Schools to Year 12 by 2022. The number of schools already extended to Year 12 is 43 with a further four preparing to do so in 2020.A further $6.00m was allocated in the 2018-19 Budget to support infrastructure building development required for the successful implementation of this initiative (with $1.50m received in 2018-19). Activity in 2018-19 included developments at Deloraine, Prospect and Ulverstone High Schools as well as the Tasmanian eSchool.National School Reform AgreementThe National School Reform Agreement is a joint agreement between the Commonwealth, State and Territory Governments to lift student outcomes across Australian schools. It sets out the long-term national goals for school education in Australia and to achieve these goals, the agreement sets out eight important strategic reforms. These reforms are in areas where national collaboration will have the greatest impact on driving improved student outcomes. The agreement will operate from 2018-19 to 2022-23.Transfer library services in DevonportDuring the year, Devonport City Council transferred Lot 1 in the paranaple Centre building to DoE for the operation of library services. As part of the transfer, the land and building used for the previous library service was transferred to Devonport City Council. As at 30 June 2019, the assets transferred to DoE were valued at $19.30m. This included the Government’s contribution of $11.00m for the construction of the building. The library occupies two floors for collections, contemporary library services and meeting room spaces.


Department of HealthNational Health AgreementOn 16 May 2018, the Government signed the Heads of Agreement for a new National Health Agreement. This represented an agreement between governments on the high level parameters for public hospital funding from 1 July 2020 to 30 June 2025, and identified reform areas for further development. The agreement preserved the current arrangement of the Australian Government contributing 45.0% of the efficient growth in activity base funding, block funding services, block grants and growth in Australian Government funding capped at 6.5% per annum nationally.Tasmanian Health ServiceThe Tasmanian Health Service Act 2018 commenced on 1 July 2018. This resulted in the implementation of a new governance model for the administration and oversight of THS. The key feature of the new model was the establishment of the role of the Secretary, DoH as the single point of accountability for the performance of the THS. The new model includes a three person team to perform the functions and powers assigned to the THS Executive under the Tasmanian Health Service Act 2018. During 2018-19, construction on the St Helens District Hospital and the Kingston Health Centre were completed and both facilities placed into operation. In addition, THS opened 22 new beds at the Repatriation Hospital to help address some of the demand and capacity pressures facing the Royal Hobart Hospital.Ambulance TasmaniaDuring 2018-19, Ambulance Tasmania completed the $1.50m Latrobe Ambulance Station upgrade to provide improved facilities for paramedics. Capital investment programCapital investment program funding received in 2018-19 totalled $220.50m and was used to undertake capital works totalling $237.90m. Of this $189.40m was expended on the Royal Hobart Hospital (RHH) redevelopment, $8.39m on the St Helens District Hospital, $4.82m on the Launceston General Hospital ward upgrades, $4.73m on the Kingston Health Centre and $3.19m on the Mersey Community Hospital development.

Department of JusticeRedress Scheme for Institutional Child Sexual AbuseThe Government agreed to participate in the Australian Government’s National Redress Scheme for Institutional Child Sexual Abuse (the Scheme). The Scheme allows for redress to be provided to individuals who suffered abuse (sexual abuse and related non-sexual abuse) which occurred when the person was a child while in the care of an institution.Survivors will be able to lodge an application with the Scheme, including where they suffered abuse in more than one institution. The three components of redress available to eligible survivors will be a:

• monetary payment of between $5 000 and $150 000 as a tangible means of recognising the wrong survivors suffered

• monetary payment or provision of services to a value up to $5 000 for the purpose of counselling and psychological care

• direct personal response from the responsible institution/s.The Scheme, administered by the Australian Government’s Department of Social Services, will operate for a period of 10 years, from 1 July 2018. The ability to assess Tasmanian applications commenced from 1 November 2018. At 30 June 2019, a number of claims had been accepted, but none had been paid.


A total of $70.00m has been committed to fund compensation and administration costs over the life of the Scheme. The Department of Justice (DoJ) expected to receive $25.00m in 2018-19 and $5.00m each year until 2027‑28. However, due to no redress being paid, DoJ only incurred costs of assessing applications and setting up and accommodating the new Child Abuse Royal Commission Response Unit, with the remaining $23.78 million being re-cashflowed across future years of the Scheme. Prison InfrastructureThe Tasmanian Government has budgeted funding of $270.00m over 10 years for the construction of a new Northern Prison. The prison will be built in two stages:

• Stage 1: Northern Remand Centre, $150.00m, expected to commence in 2019-20 and be completed within five years

• Stage 2: $120.00m, expected to commence after Stage 1.The completed Northern Prison will provide accommodation for a variety of security classifications, remand facilities and a women’s prison.An expression of interest process was undertaken by DoJ to determine a preferred site for the Northern Prison, with DoJ incurring expenditure of $0.17m to 30 June 2019.Also during 2018-19, DoJ:

• opened the $2.84m Dr Vanessa Goodwin Cottages at the Mary Hutchinson Women’s Prison to accommodate up to 25 female prisoners, including five rooms to cater for mothers and their babies

• refurbished and recommissioned 40 beds in the Ron Barwick Minimum Security Prison, at a cost of $1.41 million

• engaged a Design Consultant and undertook an expression of interest process to engage a managing contractor for the $79.34 million Southern Remand Centre and Risdon Prison Complex upgrade program.

Department of Primary Industries, Parks, Water and EnvironmentCradle Mountain Visitor projectsThe Australian and Tasmanian Governments committed $86.80m to make improvements to Cradle Mountain vistor facilities. The Tasmanian Government will provide $21.80m to deliver the Cradle Mountain Visitor Experience - a world class destination and eco-tourism product, consistent with the Cradle Mountain Experience Master Plan. Proposed work includes revitalising visitor facilities at the existing ‘gateway’ to Cradle Mountain, outside of the national park, including:

• a new visitor centre• commercial/retail precinct• car parking, including redeveloping the existing carpark at Dove Lake, • shuttle bus transit stations• improved visitor facilities, including a new viewing shelter.

The Tasmanian and Australian Governments are providing $35.00m and $30.00m respectively to improve the Cradle Mountain experience. This funding will facilitate the development of a Cradle Mountain cable way, ensuring visitors have all year, all weather access to Dove Lake.During 2018-19, the Department of Primary Industries, Parks, Water and Environment (DPIPWE) expended $5.60m to commence these projects.Bushfires in early 2019Additional human resources were allocated to provide emergency responses to the bushfires in the Central Highlands and Huon Valley and to provide support to the emergency responses.The additional emergency expenses incurred by DPIPWE in 2018-19, amounting to $16.70m, were subsequently reimbursed by way of Government grants.


Department of State GrowthTransfer of roads to Government OwnershipOn 10 December 2018, the Roads and Jetties (Management of State Highways in Cities) Amendment Act 2018 received Royal Assent. This Act enabled the transfer of Davey and Macquarie Streets in Hobart, as well as sections of Wellington and Bathurst Streets in Launceston that link the Midland and East Tamar highways, to become a part of the State road network managed by the Department of State Growth (State Growth). This transferred the responsibilities for the roads from Hobart and Launceston City Councils to the Government. Macquarie and Davey Streets, along with sections of the Brooker Highway, were transferred to the Government on 26 December 2018, totalling $7.42m along with the associated land under roads. The sections of Wellington and Bathurst Streets were not transferred from Launceston City Council in 2018-19. The Deed of Transfer was signed on 30 October 2019.Transfer of Macquarie Point railyards to Macquarie Point Development CorporationAs part of the ongoing development of the Macquarie Point site, State Growth transferred ownership of the railyards to Macquarie Point Development Corporation (MPDC) on 31 May 2019. The transferred land and buildings totalled $40.30m.Tasmanian Museum and Art Gallery - Asset condition assessment Tasmanian Museum and Art Gallery (TMAG) engaged an external consultant to assess the state of its infrastructure assets. TMAG’s property assets have a significant maintenance backlog and associated issues such as rising damp have become more common. The project will identify the condition of existing assets and will inform management’s decision-making on whether to divest certain assets as well as updating the existing Asset Management Strategy.

State Fire CommissionDuring 2018-19, the Tasmanian Fire Service (TFS) had to manage a protracted bushfire campaign, starting on Christmas day with fires on Bruny Island and continuing through to the Dolphin Sands fire in April 2019. At the height of the bushfire events TFS were battling 71 fires which burnt over 211 000 ha, equal to 3% Tasmania’s land mass and the largest fires since 1967. Many of the fire incidents were located in largely inaccessible terrain, requiring aircraft and specialist remote area firefighters to tackle them. Despite the TFS being well equipped and resourced, with more than 2 500 Tasmanian firefighters working on the front line, the scale of remote operations required interstate and international support with more than 1 100 interstate and international personnel deployed to assist firefighting agencies.Bushfire fighting expenses in 2018-19 totalled $59.05m, the largest component being aircraft expenses of $38.31m. Contributions of $57.21m were received, mainly from Treasury and DPIPWE, significantly offsetting the majority of the expense.


SUMMARISED FINANCIAL REPORTDetails of GGS entities results are set out in Table 6. The financial information below includes all GGS entities excluding entities not subject to audit.

Table 6: Summarised financial results

GGS State Entities

Underlying surplus (deficit)

Net surplus (deficit)

Total comprehensive surplus (deficit)

Net assets

$’000s $’000s $’000s $’000sExecutive and LegislatureHouse of Assembly* (42) (42) (42) 2 002Legislative Council* 374 374 374 1 501Legislative-General* 1 130 1 130 1 130 36 357Office of the Governor* (149) (149) 3 844 38 547DepartmentsDoE* (51 396) (6 857) 27 228 1 455 277DoH* (59 283) 142 170 179 717 1 436 385Communities Tasmania* (17 659) 3 690 376 689 1 828 137State Growth* (87 267) 136 019 475 567 6 218 540DoJ* (5 739) 642 642 149 483DPFEM*¹ (10 327) (1 096) 1 688 112 174DPAC* (2 517) 2 027 2 027 1 676DPIPWE* (27 092) (12 130) (147 687) 1 703 509Treasury* 1 269 1 269 1 280 9 386

Department Controlled Entities2

ABT Railway Ministerial Corporation (State Growth) (2 901) (2 901) (2 901) 43 478Ambulance Tasmania (DoH) (2 392) (11 970) (10 884) 10 040Council of Law Reporting - - - 8Housing Tasmania (Communities Tasmania) (21 767) (12 019) 360 101 1 739 456Office of Tasmanian Assessment, Standards and Certification (DoE) (22) (22) (22) (129)Tasmanian Development and Resources (State Growth) (334) (517) (517) 31 145Tasmanian Affordable Housing Limited (Communities Tasmania) 21 21 21 1 286TMAG (State Growth) 527 527 527 438 925THS (DoH) (70 402) (56 014) (20 942) 784 178Teachers Registration Board of Tasmania (DoE) 246 246 246 1 118


GGS State Entities




Net assets

$’000s $’000s $’000s $’000sOther GGS EntitiesAsbestos Compensation Fund 2 902 - - - Brand Tasmania* (89) (89) (89) 19Inland Fisheries Service* 176 (178) 224 8 907Integrity Commission* (76) (76) (76) (117)Marine and Safety Authority* 713 695 4 607 38 796Director of Public Prosecutions* (437) (446) (446) (62)Office of the Ombudsman* (62) (62) (62) 67Royal Tasmanian Botanical Gardens* 713 704 2 379 16 474State Fire Commission* (3 014) (6 557) (6 557) 116 048Tasmanian Economic Regulator 27 27 27 203TasTAFE* (8 198) (3 155) 1 644 162 229Tourism Tasmania* (398) (398) (398) (658)Workcover Tasmania Board - - - -

* entity consolidated into the GGS financial statements 1. Department of Police, Fire and Emergency Management2. Controlling entity identified in parentheses

Controlled entities are consolidated into the controlling department’s financial statements. These entities are created through legislation and are State entities under the Audit Act. As a result, separate financial statements are submitted and subject to audit.

TREASURER’S ANNUAL FINANCIAL REPORT

Legislative requirementsSection 26E of FMAA requires the Treasurer to prepare, each year, an annual financial report, which contains the results of the GGS and transactions within the Public Account and the Public Account’s balances.The Treasurer is required to table this annual financial report by no later than 31 October immediately following the financial year to which the report relates. TSS financial statements were also prepared to ensure compliance with Australian Accounting Standard AASB 1049 Whole of Government and General Government Sector Financial Reporting (AASB 1049).

Financial reporting frameworksThe GGS and TSS financial statements were both prepared in accordance with AASB 1049. They incorporate the reporting requirements of the Australian Accounting Standards Board and the Uniform Presentation Framework (UPF), which is based on the reporting standards of the Australian Bureau of Statistics’ (ABS) Government Finance Statistics framework.Explanations of the UPF Key Fiscal Aggregates were provided in notes to the financial statements and are not reproduced here.


Reconciliation summarised financial results to Treasurer’s Annual Financial Report Due to elimination adjustments made to remove inter-entity transactions from TAFR, it is difficult to reconcile the summarised financial results in Table 6 above to the TAFR balances. These eliminations are subject to audit testing to ensure appropriateness of the adjustment. Adjustments were also made to the calculation of the superannuation liability for the TSS financial statements. The PNFC and PFC entities use a corporate bond rate in calculating the discount rate to be used in the calculation of superannuation liabilities. However, in arriving at a superannuation liability for the TSS, the liabilities for these entities are converted to the government bond rate, consistent with the calculation used for GGS entities. As a result, this conversion to the lower discount rate increases the value of the liabilities.

Public AccountThe Public Account statements are a special purpose financial report prepared on a cash accounting basis, incorporating all transactions, be they operational or capital in nature, entered into by Government departments from the SDTF and Consolidated Fund. Explanations for applying this basis for preparing the Public Account statements were provided in Note 1 to the Statements and are not reproduced here.SDTF consisted of various accounts established by the Treasurer. The majority of these accounts represented departmental operating accounts, where funds appropriated from the Consolidated Fund by the annual Appropriation Act are deposited. In addition, operating accounts can retain funds that are approved by the Treasurer.Other accounts in the SDTF included trust funds, whole-of-government, business unit accounts and accounts established under legislation.

FINANCIAL ANALYSIS The following sections contain an analysis of the GGS and TSS financial statements and the Public Account statements. Comments should be read alongside TAFR. The major focus of this section is to compare 2018-19 results with the previous year and analyse trends over the past four years or a longer period where relevant.In preparing this section, the Statement of Comprehensive Income and Statement of Cash Flows have been amended by reclassifying certain revenue and expenditure items related to Australian Government capital funding.Net Operating Balance was the difference between revenue and expenses from transactions, excluding other economic flows, such as movements in fair values and gains or losses on sale of assets.Revenue from transactions included funding for capital programs; however the corresponding outflow was not part of expenses from transactions. To better portray the financial performance of the State, one-off capital funding transactions, items which were outside the normal course of operations and non-recurring items have been excluded. The result after adjusting for these items is referred to as the ‘Underlying Net Operating Balance’. The Underlying Net Operating Balance has been used for a number of years as a measure that removes the distorting impact of one-off Australian Government funding for specific capital projects.To be consistent with TAFR, figures in this section are shown as whole dollars for millions, with billions reflected with two decimal places. Dollar amounts presented in tables, commentary and figures have been rounded. This Report uses terms which may differ from the terminology adopted by TAFR.


UNDERLYING NET OPERATING BALANCE

General Government Sector

($79)m ($21)m ($67)m ($19)m2018-19 2017-18 2016-17 2015-16

276% 68% 253% 83% Improvement from prior year Deterioration from prior year No material change from prior year.

Figure 9 provides an overview of underlying results for the past four years. It shows a deficit GGS Underlying Net Operating balance in each of the four years, with movements fluctuating between years.

Figure 9: GGS Underlying Net Operating Balance (4-year trend)

(250)

(200)

(150)

(100)

(50)

0

50

100

2015-16 2016-17 2017-18 2018-19

$ m

illio

ns

Underlying Net Opera�ng Balance Budget Underlying Net Opera�ng Balance

Linear (Underlying Net Opera�ng Balance)

The GGS Underlying Net Operating Balance was a deficit of $79m for 2018-19, a deterioration of $58m from the deficit of $21m reported last year. This deterioration was due a $344m increase in expenses, outweighing the increase in revenue of $286m. Increases in employee costs and superannuation contributions of $141m and supplies and consumables of $116m, exceeded higher grants and taxation revenue of $227m.This year’s actual Underlying Net Operating Balance deficit was higher than the budgeted Net Operating Balance deficit of $5m. Actual revenue was $181m higher than budgeted revenue but actual expenditure was $256m higher than budgeted expenditure. Explanations for revenue and expense variations from budget can be found in TAFR.


Total State Sector

($198)m $94m $35m $15m2018-19 2017-18 2016-17 2015-16

311% 171% 135% 116%The TSS Underlying Net Operating Balance was a deficit of $198m in 2018-19, an deterioration of $104m from the surplus of $94m reported last year. The result reflects the increase in the GGS deficit and an deterioration in the underlying net operating results for PFC and PNFC. Details of underlying results generated by these businesses can be found in the Government businesses Chapter of this Report.The basis of calculation for TSS Underlying Net Operating Balance changed for 2018-19 as it now incorporates the underlying results for Government Businesses. In prior years the TSS Underlying Net Operating Balance was calculated as the TSS Net Operating Balance less one-off grants received in the GGS Sector. The TSS Underlying Net Operating Balance for all years referred to in this Report have been restated using the revised basis of calculation.Figure 10 provides an overview of underlying results for the past four years. It shows that although the TSS Underlying Net Operating balance varied over the past four years, at present, it is trending in a negative direction, consistent with the GGS result.

Figure 10: TSS Underlying Net Operating Balance (4-year trend)

(300)

(200)

(100)

0

100

200

300

2015-16 2016-17 2017-18 2018-19

$ m

illio

ns

Underlying net opera�ng balance Linear (Underlying net opera�ng balance)

Figure 11 shows the TSS Net Underlying Operating Balance, disaggregated into GGS, PFC and PNFC sectors, before inter-sector eliminations.


Figure 11: Disaggregated TSS Net Underlying Operating Balance

($19) ($67) ($21)($79)

$132$200

$327$258

$124

$199

$177

$56

($222)

($297) ($389)

($433)

(600)

(400)

(200)

0

200

400

600

2015-16 2016-17 2017-18 2018-19

$ m

illio

ns

Dividend and tax elimina�on PFCPNFC GGS

Underlying net opera�ng balance

Over the four years under review, GGS recorded underlying deficits, the PFC sector recorded relatively consistent underlying surpluses except for the deterioration in 2018-19, and the PNFC sector reported a lawer underling surplus in 2018-19 after three years of improving results. The dividend and tax elimination adjustment is to remove from the TSS underlying net operating balance the effect of dividends and income tax paid by PFC and PNFC to Treasury. As noted previously, the deterioration in the GGS underlying result in 2018-19 primarily contributed to the current TSS deficit, representing 53.2% of the decrease on the prior year.

REVENUE

General Government Sector

$3.85bn $1.20bn $0.52bn $0.43bnAustralian

Government Grants

State Taxation Sales of Goods & Service Fees and

Fines

Dividends and Income Tax Equivalents

GGS revenue, excluding one-off Australian Government capital funding, totalled $6.23bn in 2018-19. This was $286m, or 4.8%, higher than last year. The increase was mainly the result of higher general purpose grant payments, National Partnership Payments and Specific Purpose Payments included as part of Australian Government grant revenue and increased State taxes and dividends.Similar to previous years, grant funding from the Australian Government represented the majority of GGS revenue, totalling 61.8% of operating revenue in 2018-19 (2017-18, 61.6%).


Figure 12 is a comparison of the level of reliance on Australian Government grant funding as a percentage of total GGS revenue across states and territories. As at 15 November 2019, the 2018-19 results for Queensland and South Australia were not available.

Figure 12: State by State Comparison of Grants received as a proportion of total GGS revenue41

.1%

40.5

%

75.4

%

46.6

% 51.8

%

64.1

%

37.7

%

28.0

%

41.5

%

40.1

%

69.3

%

48.7

%

52.2

%

62.4

%

39.7

%

30.1

%

42.2

%

39.5

%

70.8

%

48.1

% 52.5

% 61.6

%

40.6

%

29.1

%

41.6

%

39.0

%

64.8

%

61.8

%

41.5

%

31.9

%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

ACT NSW NT QLD SA TAS VIC WA

Perc

enta

ge

2015-16 2016-17 2017-18 2018-19

Note: Information obtained from publically available equivalents of TAFR for other states. Some information is not available as at the time of tabling

Compared to the other states, Tasmania recorded the second highest average proportion of Australian Government grants to total GGS with an average of 62.4% over the last 4 years. Only the Northern Territory was higher with an average of 70.1%.On 14 November 2018, the Australian Parliament passed the Treasury Laws Amendment (Making Sure Every State and Territory Gets Their Fair Share of GST) Act 2018, which created a suite of measures to transition the GST distribution from the previous standard of horizontal fiscal equalisation to a new standard whereby the fiscal capacities of all states will be equalised by 2026‑27 to the level of New South Wales or Victoria, whichever is higher.The reforms include:

• short-term top-up payments to Western Australia and the Northern Territory• ongoing boosts to the GST pool from 2021-22• the introduction of a GST floor of 70% of a state’s population share, from 2022-23,

rising to 75% in 2024-25• a legislated guarantee that no state or territory will be worse off in total between

2021-22 and 2026-27.

Total State Sector

$3.85bn $1.16bn $4.10bn $0.45bnAustralian

Government Grants

State Taxation Sales of Goods & Service Fees and

Fines

Total Other Revenue


TSS revenue, excluding one-off Australian Government capital funding, totalled $9.56bn in 2018-19. This was $400m, or 4.4%, higher compared to last year. The increase was principally due to increased grants of $118m and higher sales of goods and services, $165m. Revenue for Australian Government grants and State taxation mirror the results within GGS, after accounting for inter-sector eliminations.Increased sales of goods and services were generated by the PNFC sector. Analysis of revenue within the PNFC and PFC sectors is included within the Government businesses Chapter of this Report.

CAPITAL INVESTMENTOngoing investment in infrastructure is essential to the delivery of services to the community whether it be roads, hospitals, schools, housing, health centres or many other forms of essential public infrastructure. Over the 2018-19 Budget and Forward Estimates period, the Government allocated $2.60bn to community infrastructure investment.Major infrastructure expenditure planned over this period includes:

• $1.10bn on roads and bridges• $476m for hospitals and health, including $278m for the RHH Redevelopment• $203m for human services and housing• $192m for schools and education• $170m for law and order• $142m for tourism, recreation and culture.

For 2018-19, the GGS cash payments for non-financial assets totalled $612m, in comparison to budgeted payments of $732m, a shortfall of $120m.Figure 13 shows the actual cash payments for acquisition of non-financial assets over the past four years for each department in the GGS. As noted previously, the former DHHS was restructured in 2018-19, with the creation of Communities Tasmania. Information disclosed for the former DHHS and THS covers the period 2015-16 to 2017-18. Cash payments for DoH and Communities Tasmania related only to 2018-19. The impact of the administrative restructure on DPAC has not been adjusted for 2017-18 and earlier years due to its low level of capital expenditure.

Figure 13: Actual capital expenditure

52

125

2 6 8 1

16

96

2

58

111

12

4 8

1

24

137

3

58

174

16

3 4 2

18

115

3

33

237

30

9 7 0

21

187

1

0

50

100

150

200

250

DoE DHHS DoH THS Communi�esTasmania

DoJ DPFEM DPAC DPIPWE State Growth Treasury

$ m

illio

ns

2016 Actual 2017 Actual 2018 Actual 2019 Actual


The majority of budgeted capital expenditure is provided to DoH and State Growth, with 74.0% of the total 2018-19 allocation. This was also reflected in actual capital expenditure with these entities representing 80.7% of total 2018-19 spend.

Figure 14 shows actual capital expenditure compared to budget over the last four years by government department.

Figure 14: Percentage spend of budgeted capital expenditure

137.

4%

107.

4%

55.2

%

401.

0%

59.4

%

38.4

% 77.9

%

57.5

%

44.1

%94.3

%

66.4

%

228.

7%

183.

4%

46.7

%

505.

8%

239.

6%

69.7

%

92.8

%

108.

0%

75.2

%

146.

7%

156.

1%

103.

1%

1036

.0%

73.6

%

55.8

%

71.4

%

53.4

% 100.

5%

76.3

%

64.2

% 110.

2%

65.1

%

48.4

% 78.0

%

74.1

%

0.0%

100.0%

200.0%

300.0%

400.0%

500.0%

600.0%

DoE DHHS DoH THS Communi�esTasmania

DoJ DPFEM DPAC DPIPWE State Growth Treasury

Perc

enta

ge

2016 2017 2018 2019

Note: DPAC has percentages that exceed the 600% axis scale.

Most departments had not spent their allocated capital budget over the last four years. In particular, State Growth only expended 66.1% of its total budget, a shortfall of $274m over the period. State Growth noted that Tasmania has a construction window, typically September-October through to March that is very defined by climatic conditions. Construction activity outside of this window is constrained and this reflects in project cash flows. Factors that contribute to delays in planned expenditures include statutory planning approvals and amendments to applications, responses to community consultations that may result in redesign and amendments and market conditions and value for money considerations, including the availability of project resources. Where projects have been delayed the budgeted cashflow is adjusted to the forward years when the expenditure is now expected to occur.Close monitoring and capital program reporting will enhance the forward program over the Forward Estimates and assist in identifying potential cashflow variations to support the planned achievement of roads program expenditure..DoH slightly exceeded its capital expenditure budget in 2018-19. The majority of expenditure related to the RHH Redevelopment, with expenditure totalling $189m. Communities Tasmania only managed to spend 76.3% of its capital budget in 2018-19, this was mainly associated with the affordable housing construction program which comprises a significant portion of the Capital Investment Program. A number of projects under program are being delivered through partnership arrangements with non-Government organisations, largely paid as capital grants. This has the effect of understating capital expenditure by Communities Tasmania. After allowing for the capital grants, Communities Tasmania expended 98.9% of their original capital budget.In 2018-19, DoE was planning to undertake the construction and redevelopment of a number of schools. Expenditure for these projects was delayed, with budget revenue moved to 2019-20.Collectively, departments in 2018-19 had a capital expenditure shortfall to budget of $117m. This continues the four year trend of below budget capital expenditure. Although these capital expenditure shortfalls to budget were impacted by significant projects, such as the Midland Highway and the RHH Redevelopment, concern is expressed as to whether some departments


have the capacity to undertake additional capital projects when current performance suggests existing capital expenditure targets are difficult to achieve. This concern is amplified given the Government’s intention to significantly increase infrastructure investment for departments between 2019-20 and 2022-23 as announced in the 2019-20 State Budget.

NET WORTH AND NET DEBT

GGS TSS$9.22bn ($0.77)bn $9.22bn ($1.07)bn

Net worth Net debt Net worth Net debt

Net worthGGS Net worth, also referred to as net assets, decreased by $1.03bn to $9.22bn at 30 June 2019. Net worth includes certain financial assets and liabilities not captured by the Net debt measure, most notably, accrued employee superannuation liabilities, ownership of equities, debtors and creditors.Despite the decrease as at 30 June 2019, Figure 15 shows GGS Net worth maintained an upward trend over the four year period. The current year result primarily reflected increased superannuation liabilities of $1.91bn mainly due to the impact of lower discount rates. The superannuation liability is reviewed in more detail later in this Chapter.Equity investments are included in GGS Net worth, however PNFC and PFC equity investments are removed and replaced with the assets and liabilities of the PNFC and PFC entities in arriving at TSS Net worth. As the PNFC and PFC entities are recognised at a fair value equivalent to their net asset value in GGS financial statements, Net worth is the same for GGS and TSS. This may change in future years as the Government increases its equity interest in TasWater.

Figure 15: Net worth (4-year trend)

0

2 000

4 000

6 000

8 000

10 000

12 000

2016 2017 2018 2019

$ m

illio

ns

Net Worth Linear (Net Worth)


Net debt

Net debt is a measure used to help assess the overall strength of a government’s fiscal position. Net debt comprises borrowings less cash, deposits and investments. The GGS showed a negative Net debt position in all of the past four years because cash, deposits and investments exceeded borrowings in each of those years with Net debt being negative $774m at 30 June 2019. The actual position was better than budgeted Net debt of negative $330m, although the year end position represented a deterioration of $90m from the prior year. The movement was principally due to the overnight borrowing at 30 June 2019 by Treasury in managing the financial position of the Public Account.Figure 16 provides an overview of GGS and TSS Net debt for the past four years. It shows the GGS Net debt steadily decreased from 2015-16 to 2017-18, with an increase in 2018-19. The results continue to show a negative Net debt position as cash, deposits and investments exceeded borrowings.

Figure 16: Net debt (4-year trend)

(1 200)

(1 000)

(800)

(600)

(400)

(200)

0

200

400

2016 2017 2018 2019

$ m

illio

ns

GGS Net Debt Total State Net Debt

The Net debt for TSS increased by $24m to a Net debt figure of negative $1.07bn, following a number of years of improvement.

DEFINED BENEFIT SUPERANNUATION LIABILITY

Superannuation CommissionThe Superannuation Commission (Commission) is responsible for the management of the funded assets of the Retirements Benefits Fund (RBF) Defined Benefit Contributory Scheme, the Tasmanian Ambulance Service Superannuation Scheme (TASSS), the State Fire Service Superannuation Scheme, the Parliamentary Superannuation Fund (PSF) and the Parliamentary Retiring Benefits Fund (PRBF). Each of the defined benefit funds is closed to new members. The Commission has no responsibility for the Judges Contributory Pensions or the Housing Tasmania superannuation liability.The operating costs of the Office of the Superannuation Commission (OSC) and the Commission administering the five public sector defined benefits schemes are funded directly by Appropriation, rather than through operating expenses charged directly against scheme assets. The OSC is an output group of Treasury.


Defined benefit superannuation liabilityAt 30 June 2019, the GGS unfunded defined benefit liability was $10.19bn (30 June 2018, $8.28bn). The unfunded superannuation liability comprised the following defined benefit schemes and arrangements:

• RBF Defined Benefit Contributory Scheme, $10.12bn ($8.22bn)• Parliamentary Superannuation Schemes (PSF and PRBF), $19m ($16m)• Judges Contributory Pensions, $38m ($36m)• TASSS, $5m (surplus, $5m), recognised in the financial statements of DoH• Housing Tasmania superannuation liability, $8m ($7m), recognised in the financial

statements of Communities Tasmania.The increased net liability of $1.91bn in 2018-19 was caused by a combination of:

• increased present value of the superannuation liability of $1.97bn, primarily due to: ○ changes in financial assumptions, $1.92bn, mainly arising from a change in the

discount rate from 3.0% at 30 June 2018 to 1.8% at 30 June 2019. The discount rate was determined based on a Government bond maturing in May 2041, which is similar to the combined duration of all the Government’s defined benefit superannuation liabilities. Because of the inverse relationship between the discount rate and the valuation of the liability, the liability will increase when the discount rate falls

○ current service cost and interest cost increases of $126m and $301m, respectively• increased fair value of Plan assets of $62m, which included:

○ employer contributions of $289m ○ actual return on plan assets, including interest income of $146m ○ offset by benefits paid of $417m.

The State Actuary undertook a triennial review of the RBF Defined Benefit Contributory Scheme, PRBF and the PSF as at 30 June 2016. The review was completed in August 2017 and recommended no change in the current schedule of employer contributions for the Contributory Scheme. That is, employer contributions are to increase gradually over the period from 1 July 2016 to 1 July 2019 from 82.5% to 88.5%, in line with the previous review. However, it was noted the level of contributions may change dependent on the future experience of the Scheme in particular future investment returns, pension increases, and mortality experience. The State Actuary also recommended no change in the current level of Government contributions for the PSF scheme, however the Actuary noted that for the PRBF scheme regular contributions should cease and instead additional contributions be made (if necessary) at or about the time of each member’s exit, based on the Actuary’s advice. This was due to the PRBF expected to have sufficient assets to meet benefits payable.Figure 17 shows movements in the unfunded liability, being the difference between the present value of the defined benefit obligation and fair value of plan assets.


Figure 17: Unfunded Superannuation Liability (seven year trend)

7.55 8.

20 8.86

10.4

9

9.72 10

.24

12.2

1

1.48 1.57 1.71

1.64 1.85 1.96

2.02

0

2

4

6

8

10

12

14

2013 2014 2015 2016 2017 2018 2019

$ Bi

llion

s

Present value of defined benefit obliga�on Fair value of plan assets

Unfunded liability Linear (Unfunded liability)

The graph illustrates the upward trend of the State’s obligation arising from current and former members of the public sector defined benefit superannuation schemes. The Government is ultimately responsible for meeting obligations of the schemes, all of which are now closed to new membership. Superannuation payments are met on an emerging cost basis from the Consolidated Fund, funded partly by agency contributions and by a Reserved-by-Law contribution, which comprises the balance of the Government’s share of pension and lump sum benefit costs.Figure 18 illustrates the expected nominal (un-discounted) cash outflows required to meet the emerging cost of superannuation benefits payable to members, as estimated at 30 June 2019. The estimated cash outflows represent the total cost of benefits payable and do not take into account the share of benefits funded from scheme assets.


Figure 18: Undiscounted Defined Benefit Superannuation Cash Outflows (2019-2067)

0

100

200

300

400

500

600Es�

mat

ed C

ash

Ou�

low

per

ann

um ($

mil

lion

s)

General Government 2018 General Government 2019

Figure 18 shows cash required to meet defined benefit pensions and lump sum payments will peak in approximately 10 years from now at around $566m per annum. A key budget risk is the cost to the Budget will increase significantly in coming years, increasing by 53.9% over the next 14 years and peaking in 2032‑33.

Discussion in this Chapter focused on the GGS superannuation liability only, as this makes up the vast majority of the superannuation liability to the State as illustrated in Figure 19.Figure 19: Net Defined Benefit Superannuation Liabilities

Hydro Tasmania $449m, 4.1%

Aurora Energy $4m, 0.0%

TasNetworks $144m, 2.2%

Forestry Tasmania $37m, 0.4%Other PNFC $81m, 0.7%

GGS $10.19bn, 92.6%


PUBLIC ACCOUNTWhen reviewing the commentary below, it should be noted that the Public Account statements are reported on a cash basis meaning there is no distinction between receipts or payments of a capital or operating nature and borrowings received or paid.Figure 20 shows the total cash held by the GGS at the end of June for the last four years.

Figure 20: Cash balance (four-year trend)

0.00

0.20

0.40

0.60

0.80

1.00

1.20

1.40

1.60

2016 2017 2018 2019

$ bi

llion

s

Public Account balance Public Account balance excluding overnight borrowing

As shown in Figure 20, cash held in the Public Account totalled $1.35bn at 30 June 2019 (30 June 2018, $1.36bn). Included in the balance was an overnight loan from Tascorp of $380m (30 June 2018, $260m), which was repaid on 1 July 2019. If the overnight loan was eliminated, the cash balance would have been $0.97bn (30 June 2018,$1.10bn). The effect of this arrangement was to gross up Government’s cash holdings to at least equal the balance of accounts in the Special Deposit and Trust Fund (SDTF) accounts at the end of each financial year.Figure 21 shows the composition of the Public Account by separating the Australian Government Funding Management and Tasmanian Forests Agreement accounts from other SDTF accounts.


Figure 21: Public Account composition

0.00

0.20

0.40

0.60

0.80

1.00

1.20

1.40

1.60

2016 2017 2018 2019

$ bi

llion

s

SDTF - Other accounts

SDTF - Australian Government Funding Management and Tasmanian Forests Agreement accounts

Overnight borrowing

The balance of cash and deposits in the Public Account of $1.35bn at 30 June 2019 comprised $242m of unspent Australian Government funds (30 June 2018, $313m) and $1.11bn in other SDTF accounts ($1.05bn). The balance of $242m in unspent Australian Government funds, held in the Australian Government Funding Management Account, included unspent funding of $56m ($67m) for the redevelopment of the Royal Hobart Hospital.The SDTF balance in each of the years under review included an overnight loan from Tascorp. The amount of overnight borrowing increased this year, from $260m in 2018 to $380m in 2019, as a result of the Consolidated Fund Outcome.The Consolidated Fund Outcome was a deficit of $121m in 2018-19, compared to a surplus of $15m in 2017-18. The Consolidated Fund deficit was an improvement of $42m on the 2018-19 Budget deficit of $163m. This was primarily due to State sourced receipts exceeding budget by $57m, with total expenditure above budget by $15m.

42


43Government BusinessesAudit of State entities and audited subsidiaries of State entities 2018-19

GOVERNMENT BUSINESSES

INTRODUCTION

This Chapter summarises financial results for the 17 Government businesses subject to audit. Audited subsidiaries of State entities have been included in the summarised financial results table below. However, as these results are included in the consolidated financial results of their respective controlling entity, analysis in this Chapter has been undertaken at the consolidated entity level.

GOVERNMENT BUSINESS DEVELOPMENTSThe following sections summarise some significant developments affecting the operations of Government businesses identified during the course of the audits.

Aurora Energy Pty LtdAurora Energy Pty Ltd’s (Aurora Energy) financial performance for 2018-19 was adversely impacted by the recognition of a provision for an onerous contract of $32.84m relating to a forward energy related contract to meet its obligations in the National Electricity Market. This provision was recognised given the uncertainty around future energy market conditions and the impact on forward contract prices.The Aurora PAYG+ product has been fully commercialised and offered to existing PAYG customers. The majority of PAYG customers changed to the new Aurora PAYG+ product or transferred onto other tariff offerings. At 31 July 2019, around 3 500 PAYG customers had yet to migrate to an alternative product, although this is expected to happen by the end of 2019.

Hydro-Electric CorporationThroughout 2018-19, Hydro-Electric Corporation (Hydro Tasmania) continued to focus on energy security by managing energy storages and continuing to invest in maintaining and modernising its generation assets. Hydro Tasmania operates in the competitive National Electricity Market, which has been impacted by recent past and impending future closures of interstate coal fired power stations. A national desire to increase clean, low-cost energy generation has provided Hydro Tasmania with an opportunity to become a greater contributor to the National Energy Market through the Battery of the Nation initiative. Under this initiative, Hydro Tasmania commenced investigating the feasibility of three potential pumped hydro storage sites. Hydro Tasmania has been supportive of the work Tasmanian Networks Pty Ltd (TasNetworks) is doing in the development of the Marinus Link project (Project Marinus), the proposed second interconnector between Tasmania and Victoria.In response to a projected lower revenue environment for the energy industry in future years, Hydro Tasmania commenced a business-wide program to target budget improvements and identify further operational efficiencies. Disputes between Hydro Tasmania and Basslink Pty Ltd on matters relating to the 2015-16 undersea cable fault were referred to arbitration.

Macquarie Point Development CorporationEffective 31 May 2019, the ownership of the Macquarie Point site was transferred to MPDC for nil consideration. In accordance with Australian Accounting Standards the income and asset were recognised at fair value on acquisition. The site was classified as 50% inventory and 50% land and buildings, based on the Master Plan where half of the site will be held for development purposes, either re-sale or held for lease (inventory component), with the other

44 Government BusinessesAudit of State entities and audited subsidiaries of State entities 2018-19

half of the site to be maintained as public space. The fair value of the site at 30 June 2019 was determined by an independent valuer at $40.33m ($20.16m as inventory), less estimated remaining cost of remediation of the section of the site classified as inventory, $2.60m.

Motor Accidents Insurance BoardMAIB's profit before tax of $38.41m was a significant decline on the prior year profit of $137.24m. This decline resulted primarily from a significant increase in net claims incurred of $131.49m due to market movements in the discount rates used in the calculation of the outstanding claims liability. This was slightly offset by improved investment returns which were $35.80m higher than the previous year, representing an annual return of 10.0% for 2018-19.

Metro Tasmania Pty LtdMetro Tasmania Pty Ltd (Metro) continued the bus replacement program designed to reduce the age of Metro’s fleet and ensure Metro meets its obligations under the Disability Discrimination Act 1992, as well as lowering carbon emissions, reducing repairs and maintenance costs and improving service delivery and customer satisfaction.Metro’s target delivery schedule for 2018-19 was 38 buses at an estimated capital cost of $17.48m. During 2018-19 Metro expended $15.86m on 34 new buses.

Public TrusteePublic Trustee (PT) expanded its services being provided in Launceston following a strategic restructure of its service delivery teams. This restructure resulted in the creation of a specialist Launceston based team to provide estate and enduring power of attorney administration services, which will enable PT to continue to deliver efficient services that are accessible and provide value for money to Launceston clients. In conjunction with this PT relocated to a newly refurbished office in Launceston.

Sustainable Timber TasmaniaSustainable Timber Tasmania (STT) was impacted by the 2019 bushfires which were the largest since 1967. On 15 January 2019, about 2 500 dry lightning strikes were recorded across Tasmania, resulting in the ignition of 70 fires. Response to the ignitions was coordinated by the TFS, STT and Tasmania Parks and Wildlife Service. Just over 200 000 hectares of Tasmania was impacted by the fires which included about 40 000 hectares of Permanent Timber Production Zone land. Significant effort by STT and contract fire fighters were required to control the fires.STT’s operations were significantly impacted in the southern forests, central highlands and the far Northwest. Despite this, STT were able to get all harvesting contractors back to work within 14 days, maintaining business as usual, meeting customer demand for product while undertaking the substantial bushfire control, rehabilitation and recovery effort with no fatalities.The Southwood Processing Site suffered severe ember attack, impacting both Neville Smith Forest Products and Ta Ann Tasmania. Just upstream along the Huon River, the forest containing the Tahune Airwalk was impacted, resulting in the closure of the tourism site until repairs are completed.

Tasmanian Irrigation Pty LtdTasmanian Irrigation Pty Ltd (TI) commissioned the Duck, Swan Valley and North Esk irrigation schemes during 2018-19. An impairment expense of $75.78m was recognised in 2018-19, the majority of which related to these schemes, contributing to the loss before tax of $58.48m.


Tasmanian Networks Pty LtdTasNetworks commenced two wind farm connection projects at Cattle Hill and Granville Harbour. Construction of the Cattle Hill Wind Farm was largely completed in July 2019, which allowed the wind farm to energise the substation. This wind farm is expected to be fully operational in late 2019. The Granville Harbour Wind Farm is still under construction and was also expected to be completed by late 2019.TasNetworks continued to progress Project Marinus. To support this process, a new company, Marinus Link Pty Ltd (MLPL), was incorporated on 23 November 2018 to allow the holding of real and intellectual property in a separate structure from the operations of TasNetworks. During the year, the following developments were also noted:

• In February 2019, an in-principle agreement was reached with the Australian Government for it to provide a $56.00m grant to support the Marinus Link business case development. This grant was formalised in a Project Agreement between the Tasmanian and Australian Governments in March 2019.

• The Marinus Link Design and Approvals Phase Project Scope was provided to the Tasmanian Government, as a deliverable under the Project Agreement.

• Expenditure of up to $50.00m was approved by the TasNetworks Board for the design and approvals phase, subject to a number of conditions, including formal confirmation that funding for this amount will be provided by the Tasmanian Government.

Tasmanian Ports Corporation Pty LtdFor 2018-19, Tasmanian Ports Corporation Pty Ltd (TasPorts) produced a record Net profit before tax of $17.75m due to increased freight volumes and operating cost controls. This result allows TasPorts to continue its significant maintenance and capital expenditure program while at the same time providing appropriate returns to the Government. In August 2018, TasPorts officially unveiled its Port Master Plan, which will guide $200.00m in port infrastructure improvements over the next 15 years. The plan will ensure port facilities meet future demand as the Tasmanian economy grows. The Port Master Plan delivers a coordinated state-wide vision for the future of Tasmania’s ports with greater capacity and capability at Bell Bay, Burnie, Devonport and Hobart.In 2018-19, TasPorts recorded 106 cruise ship calls across the State. These vessels carried more than 194 000 passengers and nearly 84 500 crew members. Next financial year, cruise ship calls are expected to increase to 130, with 146 currently booked for 2020-21.

Tasmanian Public Finance CorporationTasmanian Public Finance Corporation (Tascorp) has applied for the first time AASB 9 Financial Instruments and the consequential amendments to AASB 7 Financial Instruments: Disclosures, effective for the periods beginning on or after 1 July 2018. Overall, there was no significant impact on Tascorp’s opening balance of reserves and retained earnings.The new standards resulted in the reclassification of some financial assets and liabilities. Financial assets of $1.22bn were reclassified, representing 15% of financial assets, and financial liabilities of $276.30m, 3.9%, were reclassified.Tascorp has two segments of business, being Treasury and the Mersey Community Hospital Fund (MCH Fund). The treasury segment was largely classified to be at fair value through profit or loss (FVTPL) as Tascorp manages these financial assets and liabilities and they are not held for trading. The financial assets in MCH Fund operating segment were previously at FVTPL, but were reclassified to amortised cost as they intend to hold the investments to maturity and the cash flows are solely of principal and interest.


Tasmanian Railway Pty LtdTasmanian Railway Pty Ltd (TasRail) continued to manage the upgrade of the Tasmanian Rail Network which was jointly funded by the Tasmanian and Australian Governments through the Tasmanian Freight Rail Revitalisation Program. Tranche One was completed on time, with Tranche Two works to commence in 2019‑20.In September 2018, TasRail operations initiated emergency management procedures to bring an unmanned freight train in Devonport to a stop. The freight train carrying cement was diverted to a dead-end track. An internal investigation was commenced as a result of the incident, as well as an external investigation by the Australian Transport and Safety Bureau (ATSB). TasRail is continuing to work with ATSB in relation to their ongoing investigation.Costs of $1.83m were incurred in 2018-19 relating to the derailment, excluding the write-off of assets. The locomotive was repaired and placed back in service, however six of the seven wagons were written off at a value of $0.74m. The remaining wagon was repaired but has a significantly reduced life. As a result, seven new wagons were ordered and delivered in June 2019.

Tasracing Pty LtdIn 2017-18, Tasracing Pty Ltd (Tasracing) committed to spending up to $40.34m over five years (2018-22) on assets and infrastructure and spent $9.82m on capital additions in 2018-19, the majority relating to the redevelopment of the Elwick Thoroughbred Racecourse Track. This redevelopment will provide a new single 28-metre wide track with a first class all-weather racing surface. The works are expected to be completed in time for the Hobart Cup in February 2020.

TT-Line Company Pty LtdTT-Line Company Pty Ltd (TT-Line) continued to experience favourable trading conditions throughout 2018-19, with passenger numbers and freight tonnage at record levels. Following media reports in early 2019 about the financial viability of Flensburger Schiffbau-Gesellschaft (FSG), the company contracted to build the new ferries, TT-Line announced it had been in close discussion with FSG about any potential impact on TT-Line. Since that date, TT‑Line investigated and implemented contingency plans in the event of a contractual default by FSG. As at 30 June 2019, there was no financial exposure to TT-Line under the FSG contracts and the deposit due under the vessel construction contract had not been paid. Under International Maritime Organisation requirements, from 1 January 2020, ships will have to use marine fuel oil on board with a sulphur content of no more than 0.5%. The current limit is 3.5%. During 2018-19, TT-Line conducted trials for the use of alternative fuel sources and major work was undertaken to enable the existing ferries to become compliant with the new requirements.TT-Line has also commenced investigating port access and berthing options in Port Phillip Bay and Mersey River.

Tasmanian Water and Sewerage Corporation Pty LtdOn 16 November 2018, the Water and Sewerage Corporation Act 2012 was amended to give effect to the Memorandum of Understanding (MoU) entered into between the Government and councils. Key outcomes from the arrangement included:

• Tasmanian Water and Sewerage Corporation Pty Ltd (TasWater) receiving an equity contribution of $200.00m from the Government in exchange for a 10 per cent equity interest in TasWater. Equity contributions are expected to be received over 10 years, with the first contribution of $20.00m received in January 2019.


• Revised governance arrangements to enable councils and the Government to work together to improve water and sewerage outcomes for the betterment of Tasmania. This includes progressing projects of economic or environmental importance, such as the relocation of the Macquarie Point waste water treatment plant, the Launceston sewerage/stormwater separation project and the Freycinet Peninsula waste water treatment plant, and using reasonable endeavours to secure Australian Government funding.

• TasWater making best endeavours to deliver sufficient investment during the remainder of its current 10 year investment program (until 30 June 2026) in order to achieve a target of $1.80bn of total infrastructure investment.

• Capping of future regulated water and sewerage prices until 30 June 2025. This includes freezing prices for regulated services for water and sewerage customers from 1 July 2019 to 30 June 2020, developing a future price profile for regulated water and sewerage services with annual price increases for target tariffs to be no greater than 3.5% commencing from 1 July 2020 and applying any subsequent price determination by the Tasmanian Economic Regulator if it is below 3.5%.

During 2018-19, TasWater progressed the establishment of the Capital Delivery Office (CDO) to help deliver TasWater’s ten year capital expenditure plan and address emerging skills and capacity challenges. In December 2018, TasWater announced the appointment of alliance partners to form the CDO. The CDO will manage the planning, design and delivery of TasWater’s capital works program with construction work to be undertaken by external contractors. The financial performance of TasWater was significantly impacted by the write off of deferred tax balances and a revaluation of infrastructure assets. Deferred tax balances of $42.64m were derecognised following TasWater’s removal from the National Tax Equivalent Regime (NTER) on 1 January 2019. This also alleviated TasWater from any future liability for income tax. A revaluation of water and sewerage infrastructure assets resulted in an overall increase of $242.34m in the value of TasWater’s assets. The increase of $488.39m in sewerage assets was recognised in comprehensive income for the year, although the decrease of $246.15m in water assets was recognised as an expense in the Statement of Comprehensive Income. This was because there was no asset revaluation reserve balance for this asset class to offset the valuation decrement. The movement in the water and sewerage asset valuations reflected the adoption of a more accurate allocation of indirect costs in the asset valuation model.


SUMMARISED FINANCIAL REPORTDetails of Government businesses’ results are set out in Table 7. The financial information below represents consolidated financial information for those entities that have controlled entities. Also in the table are financial results of the controlled entities that were subject to audit. The table does not include controlled entities not subject to audit.Table 7: Summarised financial results

Underlying profit (loss)

Net profit (loss) before

tax

Total comprehensive

profit (loss)

Net assets2019

Business $’000s $’000s $’000s $’000sAurora Energy 10 907 11 004 10 353 120 048Hydro Tasmania 195 012 216 191 (169 200) 1 746 549Metro (2 385) (2 385) (5 271) 50 472MAIB 38 409 38 409 29 697 553 507MPDC (1 062) 33 399 33 399 71 139PAHSMA¹ (219) (219) (304) 38 265PFT² 355 355 355 2 421PT 838 838 314 8 999STT 11 767 55 138 34 924 181 501TI (1 318) (58 483) (58 483) 39 640TasNetworks 58 549 58 549 52 199 957 664TasPorts 17 771 17 746 12 047 249 993Tascorp 47 400 47 400 40 600 718 400TasRail (11 718) (25 408) (25 408) 90 536Tasracing (1 782) (1 782) (2 371) 41 740TasWater 21 742 (195 190) 249 605 1 859 257TT-Line 58 821 57 680 30 363 352 941Total Businesses 443 087 253 242 232 819 7 083 072

Consolidated controlled entities*

Bass Island Line (TasPorts) (3 024) (3 024) (2 118) 4 264FortyTwo24 Pty Ltd (TasNetworks) 5 867 5 867 4 107 4 107Momentum Energy Pty Ltd (Hydro Tasmania) 15 035 10 510 10 510 98 977Newood Holdings Pty Ltd (STT) (43) (30) (30) 565

* Financial results and information for these subsidiaries have been included within the consolidated financial results for their controlling entity above.

1. Port Arthur Historic Site Management Authority

2. Private Forests Tasmania


Government businesses generated an overall Net profit before tax of $253.42m in 2018-19. This result was a decline compared to the Net profit before tax of $579.96 in the prior year, mainly due to the lower results in 2018-19 by TasWater, down by $252.65m, and MAIB, down by $98.83m. This was partially offset by an improved result from Hydro Tasmania, an increase of $47.41m and MPDC of $34.73m, the latter due to the transfer of the Macquarie Point site to the Corporation.The significant decline in TasWater’s profit before tax was a direct result of recognising a revaluation decrement on their water assets arising from the revaluation undertaken during 2018-19. For MAIB, the decline was due to an increase in gross claims incurred arising from revised estimates in the outstanding claims liability.

Underlying profit (loss)

$443m $537m $419m $264m2018-19 2017-18 2016-17 2015-16

(18%) 28% 58% (37%)The Underlying profit (loss) is defined as operating revenue less operating expenditure for the business. This is a more accurate measure of financial performance as it reflects the earning power of an entity and the capacity to pay operating costs by removing unusual and non-recurring transactions. A comparison of the Underlying profit (loss) for Government businesses is shown in Table 8.

Table 8: Underlying profit (loss)

Underlying profit (loss)2018-19 2017-18 2016-17 2015-16

Business $’000s $’000s $’000s $’000s

Aurora Energy 10 907 18 300 27 948 43 006Hydro Tasmania 195 012 167 902 20 095 (65 435)Metro (2 385) (1 935) (3 017) (2 791)MAIB 38 409 137 236 165 678 95 265MPDC (1 062) (1 310) (1 284) (1 384)PAHSMA (219) 622 1 322 1 406PFT 355 503 413 309PT 838 1 337 1 012 107STT 11 767 5 948 (13 876) (17 228)TI (1 318) (3 445) 1 738 2 006TasNetworks 58 549 86 736 132 319 162 248TasPorts 17 771 10 999 8 727 2 093Tascorp 47 400 39 311 33 100 28 547TasRail (11 718) (9 683) (6 780) (12 216)Tasracing (1 782) (190) 867 1 156TasWater 21 742 32 998 20 617 8 401TT-Line 58 821 51 392 30 348 18 664Total 443 087 536 721 419 227 264 154


Government businesses as a whole recorded an Underlying profit of $443.09m for 2018-19. This was a 17.7% decline on the 2017-18 result. The change was primary due to MAIB’s decreased result due to higher gross claims incurred. Eleven of the 17 Government businesses recorded an Underlying profit in 2018-19, totalling $461.57m. Hydro Tasmania, Tascorp, MAIB, TT-Line and TasNetworks were the largest contributors, accounting for 89.8% of the sector’s underlying profit.Metro, MPDC, PAHSMA, TI, TasRail and Tasracing recorded Underlying losses, which totalled $18.48m. Total Underlying losses for these entities increased by $1.92m compared to 2017-18.Figure 22 shows average operating margins for each Government business over the past four years.

Figure 22: Operating margin - four year average

Aurora Energy

Hydro Ta

sman

iaMetro

PAHSM

AMAIB SS

T TI

Tasco

rpTas

Rail

Tasrac

ing

TT-LinePT

TasNetw

orks

TasPorts

TasWate

r -

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

2.0

Ope

ra�n

g Mar

gin

PFTMPDC

Figure 22 demonstrates that 14 of the 17 Government businesses achieved an Operating margin at or exceeding 1.0 over the past four years, meaning they covered all operating expenses. The entities below the benchmark were TI and TasRail. Both entities received Tasmanian Government operational funding1 and commercial industry support.2 Government operational funding and commercial industry support is detailed in a later section of this Chapter. These entities need to increase own source revenue or reduce expenses to become sustainable without support from Government.

REVENUE RECEIVED BY GOVERNMENT BUSINESSES

$5.13bn $4.88bn $4.44bn $4.22bn2018-19 2017-18 2016-17 2015-16

5% 10% 5% (6%)


Government businesses recorded $5.13bn of total revenue in 2018-19, an increase of $0.25bn from 2017-18. The higher revenue was primarily a result of:

• increased Hydro Tasmania sales revenue, $54.68m• increased Aurora Energy electricity and gas sales, $31.60m• increased MAIB investment income, $35.80m• transfer of the Macquarie Point Site to MPDC, $34.47m.

Figure 23 shows the sources of Government business revenue.

Figure 23: Government business revenue

Trade revenue: $4.7bn, 91.7%

Government opera�onal funding: $33m, 0.6%Commercial Industry Support: $72m, 1.4%

Investment revenue: $7m, 0.1%

Other: $312m, 6.1%

Trade revenue included revenue streams generated from Government businesses’ core activities. It represented 92.4% of Government businesses’ total revenue, consistent with the prior year of 92.9%, while Government operational funding accounted for just 0.6% and commercial industry support 1.4%. This indicated the sector was primarily funded by own source revenue. However, it is noted the three energy businesses generated 68.2% of total trade revenue. The majority of Government operational funding and commercial industry support was confined to entities that provided lower returns to the Government, as detailed later in this Chapter.

RETURNS TO OWNERSGovernment businesses returned $435.25m to the Government in 2018-19 and TasWater returned $20.00m to owner councils. Figure 24 shows a breakdown of returns into dividends, income tax equivalents and guarantee fees paid during the year.Dividends were paid by Aurora Energy, Hydro Tasmania, MAIB, PT, STT, TasNetworks, TasPorts, Tascorp, TasWater and TT-Line in 2018-19. These 10 Government businesses accounted for 99.9% of total returns to Government and owners.Returns from Government businesses increased 24.0% compared to 2017-18 primarily due to Hydro Tasmania paying a dividend of $80.00m and increased income tax of $60.55m, and STT paying a special dividend of $15.00m. This was of offset by lower returns by MAIB and TasNetworks in line with lower 2018-19 net profits before tax detailed previously.


Figure 24: Returns to Government and owners

0

50

100

150

200

250

300

350

400

450

500

2015-16 2016-17 2017-18 2018-19

$ m

illi

ons

Dividends Guarantee Fees Income Tax

Between 2014-15 and 2017-18 TasWater paid annual distributions of $30.00m to owners, comprising income tax equivalents, guarantee fees and dividends, with the dividend being the balancing item. On 1 January 2019, TasWater was removed from the NTER, subject to a final taxation return, and its obligation to pay the Government guarantee fees was removed via legislation. One of the key reasons for this change was to simplify TasWater’s administrative arrangements for distributions to its 29 owner councils, which from 1 July 2019 will only be in the form of dividends.

The National Tax Equivalent Regime Manual outlines the administrative and technical operating features of the NTER and allows a State or Territory Government to withdraw an entity from participation in the NTER, subject to compliance with paragraphs 43 and 44 of the Memorandum of Understanding on NTER (MoU) between the Commonwealth of Australia, the Commissioner of Taxation and all of the States and Territories. These paragraphs require a State or Territory Government to consider whether the removal of an entity from the NTER affects the integrity of the NTER and to notify other parties to the MoU of its intention to withdraw the entity from the NTER.Other State entities may benefit from removal from the NTER include TI and TasRail, both of whom have significant tax losses that are unlikely to be recouped and local government controlled entities, such as Dulverton Regional Waste Management Authority (Dulverton Waste Management) and Copping Refuse Disposal Site Joint Authority (Southern Waste Solutions), where income tax equivalents payments are made to their respective owner councils. Removal from the NTER would alleviate these entities from the cost of maintaining tax accounting records and preparing tax calculations for financial reporting purposes.

RecommendationThe Government consider whether further entities be removed from the National Tax Equivalent Regime where the benefit derived from remaining in the regime is significantly outweighed by the cost of complying with requirements.


OPERATIONAL FUNDING AND INDUSTRY SUPPORTFigure 25 shows the Government businesses that received either Government operational funding or commercial industry support funding to maintain operations or meet community service obligations.Figure 25: Government operational funding and commercial support as a % of total revenue

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Metro PAHSMA PFT TI TasRail Tasracing

Perc

enta

ge

Trade revenue Government opera�onal funding Commercial Industry Support Investment revenue Other

In aggregate, the six Government businesses in Figure 25 generated 44.7% of total revenue (2017-18, 47.7%) from either Government operational funding or commercial industry support.

Metro and Tasracing received commercial industry support to facilitate operations, with: • Metro reliant on equity contributions and a service contract with State Growth to

maintain its bus fleet, as it has generated underlying losses in each of the past four years

• Tasracing not required to pay dividends following a Government policy decision for any positive returns to be invested back into the industry.

PAHSMA, PFT, TI and TasRail received Government operational funding during 2018-19. TasRail has been reliant on Government funding to support operations as it has generated underlying losses in each of the past four years. In 2018-19, Government operational funding received by TasRail represented 35.2% of its total revenue received. TasRail is focused on increasing its own source revenue from above rail activities in order to reduce Government operational funding. Recent results indicate progress with towards this objective with the percentage of support as a percentage total revenue reducing from 46.8% in 2016-17 to 35.2% in 2018-19.Some businesses continue to be reliant on Government operational funding or commercial industry support to maintain sustainability and are not expected, or are unlikely, to generate profit sufficient enough to provide future returns to the Government. Given this, the ‘for-profit’ corporate structures for these entities may not be appropriate unless a significant improvement in their financial performance is expected to occur.


RecommendationThe Government consider undertaking a review of businesses reliant on Government funding or commercial industry support to evaluate:

• the legislative frameworks for these businesses• the ‘for-profit’ nature of these businesses• whether the businesses remain as stand-alone businesses or be attributed to a

government department or other business• whether non-profitable segments of the businesses could be separated from the

profitable segments of businesses.

FINANCING OF GOVERNMENT BUSINESSES

$434.44m 2.4%Total cash and cash equivalents held at

30 June 2019

Excluding cash and cash equivalents held by Tascorp, cash held by Government businesses increased by $10.05m, or 2.4%, from the prior year to $434.44m.This increase was primarily associated with net cash generated from operating activities of $796.20m, offset by investment activity net cash outflows of $568.15m and financing activity net cash outflows of $217.99m. Hydro Tasmania, MAIB, TasNetworks and TasWater represented 82.1% of net cash from operating activities.Purchases of Property plant and equipment were the main investment activity cash outflows at $602.36m with Hydro Tasmania, TasNetworks and TasWater representing 76.7% of this total. This was offset by proceeds from derivatives held by Hydro Tasmania of $133.88m.Dividend payments represented 99.4% of the financial activity net cash outflows. Other major movements in financing activities were net debt repayments of $65.01m offset by additional Government equity contributions of $66.40m.

$3.20bn 2.0%Total borrowings as at

30 June 2019

In addition to Tascorp, whose borrowings were a key component of its treasury business, there were eight Government businesses with debt at 30 June 2019. These eight businesses had total debt of $3.20bn at 30 June 2019 , which was consistent with the prior year total of $3.27m. Details of borrowings and relevant ratios are set out in Table 9.


Table 9: Debt and relevant ratios

BusinessBorrowings

$’000sCurrent

ratioCost of

Debt

Interestcoverage

ratioDebt to

equity

Hydro Tasmania 618 620 0.56 5.8% 5.81 35.4%PAHSMA 5 000 1.29 4.0% (0.08) 13.1%TI 26 891 0.96 2.1% (1.35) 67.8%TasNetworks 1 936 170 0.33 4.2% 1.73 202.2%TasPorts 19 833 1.26 5.6% 14.53 7.9%TasRail 19 250 0.65 2.1% (43.56) 21.3%Tasracing 8 708 1.79 7.0% (1.82) 20.9%TasWater 569 385 0.38 3.8% 2.04 30.6%Total 3 203 857Weighted average 0.56 4.5% 2.93 63.7%

Excluding Tascorp, Government businesses with debt at 30 June 2019 were primarily in industry sectors with significant capital infrastructure. TasNetworks, Hydro Tasmania and TasWater accounted for 97.5% (30 June 2018, 97.7%) of total debt held.Government businesses with debt had a weighted average current ratio of 0.56. This was below the benchmark of 1.0, which indicated a net working capital deficit. The result was driven by Hydro Tasmania, TI, TasNetworks, TasRail and TasWater whose ratios were impacted by short-term loan facilities and fixed-term debt maturing in 2019-20. In addition, Hydro Tasmania’s ratio was impacted by a number of current derivative instruments and a significant increase in the fair value of onerous contracts during 2018-19. The average interest coverage ratio for the sector of 2.93 was above the benchmark of 2.0 due to the financial results of Hydro Tasmania, TasNetworks and TasWater. TasNetworks debt resulted in a debt to equity ratio over 100.0%. This was a result of a decision by the Government in January 2015 to transfer debt from Hydro Tasmania to TasNetworks to rebalance the finances of the two businesses. This ratio, however, is lower than other electricity transmission businesses, most of whom have debt to equity ratios exceeding 200.0%.

CAPITAL INVESTMENT BY GOVERNMENT BUSINESSES

$2.38bn $2.60bn $53.63mTotal Capital Spend over

the last 4 yearsTotal Budgeted Capital

Spend over the last 4 yearsAverage Spending Gap

over the last 4 years

Government businesses (other than MAIB and Tascorp) invested a total of $2.38bn in capital projects over the past four years. This resulted in an average underspend of $53.63m per year compared to capital budgets.Figure 26 shows there was a consistent trend of capital spending below capital budgets in each of the four years under review. The gap was significantly reduced in 2017-18 due to TasWater’s capital spend being significantly higher than the budgeted figure.This analysis does not include estimated progress payments for the two new ships being constructed by TT-Line because insignificant capital expenditure had been incurred on the project to 30 June 2019.


Figure 26: Capital spending

-

100

200

300

400

500

600

700

800

2015-16 2016-17 2017-18 2018-19

$ m

illio

ns

Actual Capital Spend Budgeted Capital Spend

Note: Includes all Government business other than PFCs.

In 2018-19, the total spending gap was $25.52m, which contributed to an improvement in the rolling four year average spending gap. Nine out of 14 Government businesses did not fully spend budgeted capital expenditure, which was the same as the previous year. Nine out of the 14 Government businesses failed to meet budget over the four years. This was the same as the previous year. TI, TasRail, Tasracing and Hydro Tasmania accounted for 94.0% of the four year period spending gap.Figure 27 shows the percentage actually spent on capital expenditure as a percentage of budget over 4 years.Figure 27: Percentage spend of budgeted capital expenditure

Aurora Energy ST

T

Hydro Ta

sman

iaMetro PT

PAHSM

A

TasNetw

orks

TasPorts

Tasrac

ing

TasRail

TasWate

r

TT-LineTI

0.0%

100.0%

200.0%

300.0%

400.0%

500.0%

600.0%

700.0%

Perc

enta

ge

2016 2017 2018 2019

MPDC


As shown in Figure 27, the businesses with the most significant capital programs, being Hydro Tasmania, TasNetworks and TasWater, were fairly close to the 100% benchmark across the four years, with averages of 96.7%, 100.1% and 110.6% respectively over the four years. The significant swings for PAHSMA and PT are a result of a lower scale of capital programs where timing of expenditure had a significant impact on their percentage of expenditure to budget. Despite these fluctuations, over the four years PAHSMA and PT averaged 115.6% and 100.5%, respectively. The significant increase for MPDC in 2018-19 reflects an escalation in activity as the Corporation transitions from rehabilitation to site development. Government businesses identified a number of reasons why they do not fully expend all capital budgets during the year. Some of the impacts were from external factors like bushfires and floods which impacted some capital projects at Hydro Tasmania, STT and TasRail or major operational issues like Basslink outages that impacted Hydro. These external events resulted in resources for some capital projects being diverted to deal with the events or caused other significant delays to the projects.Internal factors that contributed to the underspend were:

• capital budgets included 10% to 20% contingencies which were not always needed or required for projects

• internal capital allocation and bidding processes where not all projects were approved, resulting in unallocated capital budgets

• over-estimation of the cost of projects due to timing of final business cases and associated estimates on which initial budgets were based

• delays in major projects commencing or moving into construction phases• capital works planned no longer required due to changed circumstances or resources

re-prioritised for business reasons• capital work performed for lower cost than originally expected• ambitious cash flow budgeting for projects with a duration of over a year.

58


59Other State entitiesAudit of State entities and audited subsidiaries of State entities 2018-19

OTHER STATE ENTITIES

INTRODUCTIONThis Chapter includes all State entities other than entities included in:

• General Government Sector and associated entities• Government Businesses and associated entities• Councils and other local government entities• State entities whose audits were dispensed with• State entities with a financial year ended 31 December 2018.

Other State entitiesOther State entities are statutory authorities and other not-for-profit entities not consolidated into GGS, government businesses or local government entities. Audits were completed for the following other State entities:

• Aboriginal Land Council of Tasmania (ALCT)• Forest Practices Authority (FBA)• Legal Aid Commission of Tasmania (Legal Aid)• Legal Profession Board (LPB)• Property Agents Board (PAB)• Property Agents Trust (PAT)• RBF• Tasmanian Beef Industry (Research and Development) Trust (TasBeef)• Tasmanian Building and Construction Industry Training Board (TBCITB)• Tasmanian Community Fund (TCF)• Tasmanian Dairy Industry Authority (TDIA)• Tasmanian Heritage Council (THC)• The Nominal Insurer (TNI)• Wellington Park Management Trust (Wellington Park).

As at 15 November 2019, the audit of the National Trust of Australia (Tasmania) (National Trust) had not been completed.OTHER STATE ENTITY DEVELOPMENTSThe following sections summarise some significant developments affecting the operations of other State entities identified during the course of the audits.

Retirement Benefits FundThe Fund is managed by the Superannuation Commission as Trustee and comprises the following defined benefit sub-funds:

• RBF Contributory Scheme (closed 15 May 1999)• PSF (closed 11 November 1985)• PRBF (this being the successor fund for the closed PSF, and was closed on 1 July 1999)• State Fire Commission Superannuation Scheme (closed 30 June 2005)• TASSS (closed 30 June 2006).

60 Other State entitiesAudit of State entities and audited subsidiaries of State entities 2018-19

At 30 June 2019, the Fund had a net liability position $5.34bn at 30 June 2019, compared to $5.11bn at 30 June 2018. The increase in the net liability was primarily due to increased defined member liabilities of $283.15m, largely due to applying a lower discount rate than the prior year, resulting in a movement in the liability of $380.45m. This was partially offset by net pension and lump sum payments (after member and employer contributions) of $97.35m. The underlying surplus was $142.45m, a reduction of $33.73m compared to the prior year surplus of $176.18m. The decrease was primarily due to lower investment returns attributable to lower interest rates.

SUMMARISED FINANCIAL RESULTSDetails of Other State entity results for 30 June 2019 are set out in Table 10. The table does not include controlled entities not subject to audit.Table 10: Summarised financial results (30 June 2019)

Other State Entities


$’000s


$’000s


$’000s

Net assets (liabilities)

$’000sALCT (729) (225) (225) 29 246FPA (192) (192) (192) 1 957Legal Aid 1 081 1 081 1 081 5 806LPB 249 249 249 194PAB 117 117 117 616PAT (264) (264) (264) 8 963RBF 142 451 (234 273) (234 273) (5 342 294)TasBeef 16 16 16 658TBCITB 1 416 1 416 1 416 5 663TCF 557 557 557 11 853TDIA 81 93 93 789THC 2 2 2 127TNI (350) (350) (350) (176)Wellington Park 111 111 111 376

61Acronyms and AbbreviationsAudit of State entities and audited subsidiaries of State entities 2018-19

ACRONYMS AND ABBREVIATIONS

AASB Australian Accounting Standards BoardAASB 1049 AASB 1049 Whole of Government and General Government Sector

Financial ReportingABS Australian Bureau of StatisticsALCT Aboriginal Land Council of TasmaniaATSB Australian Transport and Safety BureauAudit Act Audit Act 2008Aurora Energy Aurora Energy Pty LtdCommission The Superannuation CommissionCommunities Tasmania Department of Communities TasmaniaCorporations Act Corporations Act 2001CPI Consumer Price IndexDHHS Department of Health and Human ServicesDoE Department of EducationDoH Department of HealthDoJ Department of JusticeDPAC Department of Premier and CabinetDPFEM Department of Police, Fire and Emergency ManagementDPIPWE Department of Primary Industries, Parks, Water and EnvironmentEBIT Earnings before interest and taxERO Equal Remuneration Order CostsFMA Financial Management Act 2016FMAA Financial Management and Audit Act 1990FPA Forest Practices AuthorityFSG Flensburger Schiffbau-GesellschaftFVTPL Fair Value through Profit or LossGBE Government Business EnterpriseGGS General Government SectorGST Goods and Services TaxHydro Tasmania Hydro-Electric CorporationLegal Aid Legal Aid Commission of TasmaniaLG Act Local Government Act 1993LGAT Local Government Association of TasmaniaLPB Legal Profession BoardMAIB Motor Accidents Insurance BoardMCH Mersey Community HospitalMCH Fund Mersey Community Hospital FundMetro Metro Tasmania Pty Ltd

62 Acronyms and AbbreviationsAudit of State entities and audited subsidiaries of State entities 2018-19

MLPL Marinus Link Pty LtdMoU Memorandum of UnderstandingMPDC Macquarie Point Development CorporationNDIS National Disability Insurance SchemeNTER National Tax Equivalents RegimeNWRH North West Regional HospitalOrder State Service (Restructuring) Order 2018OSC Office of the Superannuation CommissionPAA Public Account Act 1986PAB Property Agents BoardPAHSMA Port Arthur Historic Site Management AuthorityPAT Property Agents TrustPFC Public Financial CorporationsPFT Private Forests TasmaniaPNFC Public Non-Financial CorporationsPRBF Parliamentary Retiring Benefits FundPSF Parliamentary Superannuation FundPT Public TrusteeRBF Retirements Benefits FundRHH Royal Hobart HospitalSDTF Special Deposits and Trust FundState Growth Department of State GrowthSTT Sustainable Timber TasmaniaTAFR Treasurer’s Annual Financial ReportTasBeef Tasmanian Beef Industry (Research and Development) TrustTascorp Tasmanian Public Finance CorporationTI Tasmanian Irrigation Pty LtdTasNetworks Tasmanian Networks Pty LtdTasPorts Tasmanian Ports Corporation Pty LtdTasracing Tasracing Pty LtdTasRail Tasmanian Railway Pty LtdTASSS Tasmanian Ambulance Service Superannuation SchemeTasWater Tasmanian Water and Sewerage Corporation Pty LtdTBCITB Tasmanian Building and Construction Industry Training BoardTCF Tasmanian Community FundTDIA Tasmanian Dairy Industry AuthorityTHC Tasmanian Heritage CouncilTFS Tasmanian Fire Servicethe Fund Retirement Benefits Fundthe Office Tasmanian Audit Office

63Acronyms and AbbreviationsAudit of State entities and audited subsidiaries of State entities 2018-19

the states Australian states and territoriesTHS Tasmanian Health ServiceTMAG Tasmanian Museum and Art GalleryTNI The Nominal InsurerTreasury Department of Treasury and FinanceTSS Total State SectorTT-Line TT-Line Company Pty LtdUPF Uniform Presentation FrameworkWellington Park Wellington Park Management TrustWT3 Working Together for 3 year olds

64 Appendix A - Timeliness of ReportingAudit of State entities and audited subsidiaries of State entities 2018-19

APPENDIX A - TIMELINESS OF REPORTINGFinancial Report

Received & Accepted

Accepted Report

certified by

Final Certified

report received

Audit opinion signed

Executive and LegislatureHouse of Assembly 13-Aug-19 AA N/A 23-Oct-19*Legislative Council 14-Aug-19 AA N/A 29-Oct-19*Legislature-General 13-Aug-19 AA N/A 30-Oct-19*Office of the Governor 14-Aug-19 AA N/A 21-Oct-19*Ministerial DepartmentsCommunities Tasmania 14-Aug-19 M 23-Oct-19 23-Oct-19*DoE 14-Aug-19 M 27-Sep-19 27-Sep-19DoH 14-Aug-19 M 25-Sep-19 27-Sep-19DoJ 14-Aug-19 AA 6-Sep-19 18-Sep-19DPAC 13-Aug-19 M 26-Sep-19 26-Sep-19DPFEM 14-Aug-19 M 25-Sep-19 27-Sep-19DPIPWE 14-Aug-19 M 12-Sep-19 23-Sep-19State Growth 14-Aug-19 M 30-Sep-19 16-Oct-19*Treasury 12-Aug-19 AA N/A 26-Sep-19Treasury - Public Account 9-Oct-19 AA N/A 30-Oct-19Treasury - TAFR 9-Oct-19 AA 29-Oct-19 30-Oct-19 Ministerial Department Controlled EntitiesABT Railway Ministerial Corporation

14-Aug-19 AA N/A 16-Oct-19*

Ambulance Tasmania 14-Aug-19 M 25-Sep-19 27-Sep-19Housing Tasmania 14-Aug-19 M 23-Oct-19 23-Oct-19*Office of Tasmanian Assessment, Standards and Certification

14-Aug-19 AA N/A 27-Sep-19

Tasmanian Affordable Housing Limited

27-Sep-19^ AA 27-Sep-19 27-Sep-19

Tasmanian Development and Resources

14-Aug-19 M 23-Sep-19 27-Sep-19

Teachers Registration Board of Tasmania

14-Aug-19 AA N/A 27-Sep-19

THS 13-Aug-19 M 27-Sep-19 27-Sep-19TMAG 14-Aug-19 M 25-Sep-19 27-Sep-19 Other General Government EntitiesAsbestos Compensation Fund

13-Aug-19 AA N/A 17-Sep-19

Brand Tasmania 14-Aug-19 M 25-Sep-19 26-Sep-19

65Appendix A - Timeliness of ReportingAudit of State entities and audited subsidiaries of State entities 2018-19

Financial Report

Received & Accepted

Accepted Report

certified by

Final Certified

report received


Council of Law Reporting 14-Aug-19 M 3-Sep-19 20-Sep-19Director of Public Prosecutions

14-Aug-19 AA N/A 24-Sep-19

Inland Fisheries Service 31-Jul-19 M 25-Sep-19 26-Sep-19Integrity Commission 14-Aug-19 M 26-Sep-19 27-Sep-19MAST 9-Aug-19 AA N/A 9-Sep-19Office of the Ombudsman 14-Aug-19 AA N/A 7-Oct-19*Royal Tasmanian Botanical Gardens

14-Aug-19 M 25-Sep-19 30-Sep-19*

State Fire Commission 14-Aug-19 M 26-Sep-19 27-Sep-19Tasmanian Economic Regulator

12-Aug-19 AA N/A 26-Sep-19

Tasmanian State Health Funding Pool

16-Sep-19^ AA 16-Sep-19 17-Sep-19

TasTAFE 14-Aug-19 AA N/A 23-Aug-19Tourism Tasmania 6-Aug-19 M 19-Sep-19 19-Sep-19Workcover Tasmania Board 14-Aug-19 AA N/A 17-Sep-19Government BusinessesAurora Energy 8-Aug-19 AA N/A 8-Aug-19Bass Island Line Pty Ltd 9-Aug-19 AA N/A 16-Aug-19FortyTwo24 Pty Ltd 12-Aug-19 AA N/A 15-Aug-19Hydro Tasmania 14-Aug-19 AA N/A 14-Aug-19MAIB 14-Aug-19 AA N/A 20-Aug-19Metro 13-Aug-19 AA N/A 7-Aug-19Momentum Energy Pty Ltd 14-Aug-19 AA N/A 14-Aug-19MPDC 14-Aug-19 M 18-Sep-19 8-Oct-19*Newood Holdings Pty Ltd 14-Aug-19 AA N/A 23-Aug-19PAHSMA 14-Aug-19 M 26-Sep-19 8-Oct-19*PFT 13-Aug-19 AA N/A 26-Sep-19PT 14-Aug-19 M 9-Sep-19 12-Sep-19STT 9-Aug-19 AA N/A 14-Aug-19Tascorp 13-Aug-19 AA N/A 19-Aug-19TasNetworks 14-Aug-19 AA N/A 12-Aug-19TasPorts 9-Aug-19 AA N/A 16-Aug-19Tasracing 12-Aug-19 AA N/A 12-Aug-19TasRail 7-Aug-19 AA N/A 8-Aug-19TasWater 14-Aug-19 AA N/A 15-Aug-19


Financial Report

Received & Accepted

Accepted Report

certified by

Final Certified

report received


TI 14-Aug-19 AA N/A 20-Aug-19TT-Line 14-Aug-19 AA N/A 15-Aug-19Local Government AuthoritiesUrban CouncilsBrighton 14-Aug-19 AA 1-Oct-19 4-Oct-19*Burnie City 14-Aug-19 AA 11-Oct-19 17-Oct-10*Central Coast 14-Aug-19 AA 27-Sep-19 3-Oct-19*Clarence City 14-Aug-19 M 21-Oct-19 21-Oct-19*Devonport City 14-Aug-19 M 27-Sep-19 27-Sep-19Glenorchy City 14-Aug-19 M 28-Oct-19 5-Nov-19*Hobart City 14-Aug-19 M 17-Oct-19 22-Oct-19*Kingborough 14-Aug-19 M 16-Oct-19 16-Oct-19*Launceston City 14-Aug-19 M 27-Sep-19 27-Sep-19West Tamar 12-Aug-19 AA N/A 26-Sep-19Rural CouncilsBreak O'Day 13-Aug-19 AA N/A 4-Oct-19*Central Highlands 12-Aug-19 AA N/A 26-Sep-19Circular Head 14-Aug-19 M 27-Sep-19 3-Oct-19*Derwent Valley 14-Aug-19 M 14-Nov-19 14-Nov-19*Dorset 14-Aug-19 AA 4-Oct-19 16-Oct-19*Flinders 14-Aug-19 AA N/A 27-Sep-19George Town 14-Aug-19 AA 6-Sep-19 20-Sep-19Glamorgan-Spring Bay 14-Aug-19 AA N/A Not completedHuon Valley 14-Aug-19 M 17-Oct-19 18-Oct-19*Kentish Not submitted N/A Not commencedKing Island 30-Aug-19^ AA N/A 15-Nov-19*Latrobe Not submitted N/A Not commencedMeander Valley 13-Aug-19 AA N/A 26-Sep-19Northern Midlands 14-Aug-19 M 14-Oct-19 29-Oct-19*Sorell 14-Aug-19 AA 27-Sep-19 27-Sep-19Southern Midlands 13-Aug-19 AA N/A 26-Sep-19Tasman 14-Aug-19 M 27-Sep-19 30-Sep-19*


Financial Report

Received & Accepted

Accepted Report

certified by

Final Certified

report received


Waratah-Wynyard 14-Aug-19 AA 27-Sep-19 27-Sep-19West Coast 14-Aug-19 AA N/A 26-Sep-19Local Government Controlled EntitiesC-Cell Unit Trust 8-Aug-19 M 9-Oct-19 10-Oct-19*Cradle Coast Authority 13-Aug-19 M 29-Sep-19 1-Oct-19*Dulverton Waste Management

8-Aug-19 AA 25-Sep-19 26-Sep-19

Launceston Flood Authority 14-Aug-19 AA N/A 8-Oct-19*Local Government Association of Tasmania

14-Aug-19 AA N/A 3-Oct-19*

Microwise Australia Pty Ltd 14-Aug-19 AA 1-Oct-19 4-Oct-19*North East Care Inc. 14-Aug-19 AA Not received Not completed Northern Tasmanian Regional Development Corporation Ltd

25-Jul-19 M 5-Sep-19 6-Sep-19

Southern Tasmanian Councils Association

14-Aug-19 AA N/A 27-Sep-19

Southern Waste Solutions 8-Aug-19 M 9-Oct-19 10-Oct-19*Tas Communications Unit Trust

13-Aug-19 AA 15-Oct-19 15-Oct-19*

Other State EntitiesALCT 14-Aug-19 AA N/A 23-Oct-19*FPA 14-Aug-19 M 27-Sep-19 27-Sep-19Legal Aid 16-Aug-19^ M 27-Sep-19 27-Sep-19LPB 13-Aug-19 AA N/A 21-Aug-19National Trust 15-Aug-19^ M Not received Not completed PAB 14-Aug-19 M 15-Oct-19 15-Oct-19*PAT 14-Aug-19 M 23-Oct-19 5-Nov-19*RBF 14-Aug-19 M 3-Sep-19 5-Sep-19TasBeef 29-Sep-19 AA 20-Sep-19 1-Oct-19*TBICTB 12-Aug-19 M 26-Sep-19 26-Sep-19TCF 14-Aug-19 AA N/A 16-Oct-19*TDIA 13-Aug-19 AA N/A 27-Sep-19THC 14-Aug-19 AA N/A 27-Sep-19TNI 14-Aug-19 AA N/A 21-Oct-19*Wellington Park 14-Aug-19 AA N/A 27-Sep-19


Financial Report

Received & Accepted

Accepted Report

certified by

Final Certified

report received


Audits Dispensed withAETV Pty Ltd (Hydro Tasmania)

14-Aug-19 AA N/A N/A

Bell Bay Pty Ltd (Hydro Tasmania)


Bell Bay Three Pty Ltd (Hydro Tasmania)


Brighton Industrial and Housing Corporation Pty Ltd (Brighton Council)

27-Sep-19^ AA N/A N/A

C-Cell Pty Ltd (Southern Waste Solutions)

Not Submitted N/A N/A N/A

Flinders Island Ports Corporation Pty Ltd (TasPorts)

26-Jul-19 AA N/A N/A

Geeveston Town Hall Company Ltd (Huon Valley Council)


Heemskirk Holdings Pty Ltd (Hydro Tasmania)


Heermskirk Wind Farm Pty Ltd (Hydro Tasmania)


Heritage Building Solutions Pty Ltd (Southern Midlands Council)


Heritage Education & Skills Centre Pty Ltd (Southern Midlands Council)


HT Wind Developments Pty Ltd (Hydro Tasmania)


HT Wind New Zealand Pty Ltd (Hydro Tasmania)


HT Wind Operations Pty Ltd (Hydro Tasmania)


Hydro Tasmania Consulting (Holding) Pty Ltd (Hydro Tasmania)


King Island Ports Corporation Pty Ltd (TasPorts)

26-Jul-19 AA N/A N/A

Kingborough Waste Services Pty Ltd (Kingborough Council)



Financial Report

Received & Accepted

Accepted Report

certified by

Final Certified

report received


Large Scale Renewables Pty Ltd (TasNetworks)


Lofty Ranges Power Pty Ltd (Hydro Tasmania)


Maidstone Park Management Controlling Authority (Devonport City Council)


Marinus Link Pty Ltd (TasNetworks)


Metro Coaches (Tas) Pty Ltd (Metro)


Newood Energy Pty Ltd (Newood Holdings Pty Ltd)


Newood Huon Pty Ltd (Newood Holdings Pty Ltd)


Newood Smithton Pty Ltd (Newood Holdings Pty Ltd)


palawa Enterprise Pty Ltd (ALCT)


palawa Enterprise Unit Trust (ALCT)


RE Storage Project Holdings Pty Ltd (Hydro Tasmania)


Tasmanian Pharmacy Authority


Tasmanian Timber Promotion Board

9-Aug-19 AA N/A N/A

TasNetworks Holdings Pty Ltd (TasNetworks)


Woolnorth Bluff Point Holdings Pty Ltd (Hydro Tasmania)


Woolnorth Studland Bay Holdings Pty Ltd (Hydro Tasmania).


Legend:M ManagementAA Accountable AuthorityN/A Not applicable^ Financial statements not submitted within legislated timeframe* Audit not completed within legislated timeframe.

70 APPENDIX B - AUDIT FINDINGSAudit of State entities and audited subsidiaries of State entities 2018-19

APPENDIX B - AUDIT FINDINGS

Current Year issues Prior Year unresolved issuesH M L Total H M L Total

General Government Sector Abt Railway Ministerial Corporation - - 2 2 - - - -Ambulance Tasmania - - - - - 2 - 2Asbestos Compensation Fund - - - - - 1 - 1Communities Tasmania - 1 1 2 - - - -DoH - 2 - 2 - 2 - 2DoJ 1 3 6 11 - 3 4 7DPAC - 1 - 1 - - - -DPFEM - 3 3 6 - - - -DPIPWE - 1 12 13 - - - -House of Assembly - - - - - 1 1 2Housing Tasmania - - - - - 2 - 2Inland Fisheries Service - 2 - 2 - - - -Legislature-General - - - - - - 1 1MAST - 1 - 1 - - 1 1State Fire Commission - 2 - 2 - 5 2 7State Growth - 2 1 3 2 6 2 10Tasmanian Development and Resources - - - - - 2 1 3TasTAFE - - 1 1 - 1 - 1THS - - - - 3 3 2 8TMAG - - 1 1 1 2 1 4Treasury - - 1 1 - - 1 1Workcover Tasmania Board - - - - - - 1 1Subtotal 1 19 28 48 6 30 17 53Government Business Sector Aurora Energy - - 1 1 - - - -Hydro Tasmania 2 3 3 8 - 1 - 1PAHSMA 1 2 1 4 - 1 2 3PT - - - - - 1 - 1STT - 2 - 2 - 2 - 2TasNetworks - 1 1 2 - - 1 1Tasracing - - - - - 2 1 3TasRail - 1 - 1 - - - -TasWater - 1 - 1 - - 1 1TI - 3 1 4 1 - - 1TT-Line - - - - - - 1 1Subtotal 3 13 7 23 1 7 6 14

71APPENDIX B - AUDIT FINDINGSAudit of State entities and audited subsidiaries of State entities 2018-19

Current Year issues Prior Year unresolved issuesH M L Total H M L Total

Local Government Sector Break O'Day - 1 1 2 - - - -Brighton - 5 - 5 - - - -Burnie City - - 1 1 - 2 2 4Central Coast - 4 1 5 - - 1 1Circular Head - 4 - 4 - - - -Clarence City 1 3 1 5 - - - -Derwent Valley - 1 - 1 - 4 3 7Devonport City 1 2 2 5 - 1 1 2Dorset 1 1 - 2 - - - -Dulverton Waste Management - 1 - 1 - - - -Flinders - - 1 1 - 2 1 3George Town - - 1 1 - 2 2 4Glamorgan Spring Bay - 2 4 6 - - - -Glenorchy City 1 - 1 2 1 2 - 3Hobart City - - 1 1 1 2 1 4Huon Valley - - - - - 1 - 1King Island - 1 - 1 1 4 - 5Kingborough Council - - 2 2 - - - -Launceston City 1 2 - 3 - - 1 1Meander Valley - 1 - 1 - - - -Northern Midlands - - 1 1 - 1 - 1Northern Tasmanian Development Corporation Ltd - 1 - 1 - - - -Sorell - 1 1 2 - - 2 2Southern Midlands - - - - - - 1 1Tasman 1 2 1 4 - - 1 1Waratah-Wynyard - 4 3 7 - 3 1 4West Coast - 1 - 1 1 - - 1Subtotal 6 37 22 65 4 24 17 45Other Entities ALCT - 4 1 5 - - - -Legal Aid - - 2 2 - - - -Subtotal - 4 3 7 - - - -Grand Total 10 73 60 143 11 61 40 112

Legend:H HighM ModerateL Low

72


AUDIT MANDATE AND STANDARDS APPLIED

MandateSection 17(1) of the Audit Act 2008 states that:

‘An accountable authority other than the Auditor-General, as soon as possible and within 45 days after the end of each financial year, is to prepare and forward to the Auditor-General a copy of the financial statements for that financial year which are complete in all material respects.’

Under the provisions of section 18, the Auditor-General:‘(1) is to audit the financial statements and any other information submitted by a State

entity or an audited subsidiary of a State entity under section 17(1).’Under the provisions of section 19, the Auditor-General:

‘(1) is to prepare and sign an opinion on an audit carried out under section 18(1) in accordance with requirements determined by the Australian Auditing and Assurance Standards

(2) is to provide the opinion prepared and signed under subsection (1), and any formal communication of audit findings that is required to be prepared in accordance with the Australian Auditing and Assurance Standards, to the State entity’s appropriate Minister and provide a copy to the relevant accountable authority.’

Standards AppliedSection 31 specifies that:

‘The Auditor-General is to perform the audits required by this or any other Act in such a manner as the Auditor-General thinks fit having regard to -(a) the character and effectiveness of the internal control and internal audit of the

relevant State entity or audited subsidiary of a State entity; and(b) the Australian Auditing and Assurance Standards.’

The auditing standards referred to are Australian Auditing and Assurance Standards as issued by the Australian Auditing and Assurance Standards Board.

Phone (03) 6173 0900Fax (03) 6173 0999Email [email protected] www.audit.tas.gov.au

Address Level 8, 144 Macquarie Street Hobart, Tasmania

Postal Address GPO Box 851, Hobart 7001Office Hours 9am to 5pm Monday to Friday

Launceston OfficePhone (03) 6173 0971

Address Level 4, Henty House 1 Civic Square, Launceston, Tasmania

Cover Photo Luke Tscharke

Documents

No. 6 of 2019-20 - Tasmanian Audit Office · 2019 (No. 25) 2019 PARLIAMENT OF TASMANIA Auditor-General’s Report on the Financial Statements of State entities Volume 2 Audit of State